Source(s) of the information:

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

AB-2011-3 - Report of the Appellate Body

CASES CITED IN THIS REPORT

Short TitleFull case title and citation
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of Salmon, WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161
Brazil – Aircraft Panel Report, Brazil – Export Financing Programme for Aircraft, WT/DS46/R, adopted 20 August 1999, as modified by Appellate Body Report WT/DS46/AB/R, DSR 1999:III, 1221
Brazil – Aircraft (Article 21.5 – Canada) Panel Report, Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the DSU, WT/DS46/RW, adopted 4 August 2000, as modified by Appellate Body Report WT/DS46/AB/RW, DSR 2000:IX, 4093
Brazil – Aircraft (Article 21.5 – Canada II) Panel Report, Brazil – Export Financing Programme for Aircraft – Second Recourse by Canada to Article 21.5 of the DSU, WT/DS46/RW/2, adopted 23 August 2001, DSR 2001:X, 5481
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, 1527
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI, 2985
Canada – Dairy (Article 21.5 – New Zealand and US) Appellate Body Report, Canada – Measures Affecting the Importation of Milk and the Exportation of Dairy Products – Recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/DS103/AB/RW, WT/DS113/AB/RW, adopted 18 December 2001, DSR 2001:XIII, 6829
Canada – Wheat Exports and Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of Wheat and Treatment of Imported Grain, WT/DS276/AB/R, adopted 27 September 2004, DSR 2004:VI, 2739
Chile – Price Band System Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/AB/R, adopted 23 October 2002, DSR 2002:VIII, 3045 (Corr.1, DSR 2006:XII, 5473)
Chile – Price Band System (Article 21.5 – Argentina) Appellate Body Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU by Argentina, WT/DS207/AB/RW, adopted 22 May 2007, DSR 2007:II, 513
China – Publications and Audiovisual Products Appellate Body Report, China –Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R, adopted 19 January 2010
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos‑Containing Products, WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, 3243
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, 591
EC – Bananas III (Article 21.5 – Ecuador II) / EC – Bananas III (Article 21.5 – US) Appellate Body Reports, European Communities – Regime for the Importation, Sale and Distribution of Bananas – Second Recourse to Article 21.5 of the DSU by Ecuador,WT/DS27/AB/RW2/ECU, adopted 11 December 2008, and Corr.1 / European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by the United States, WT/DS27/AB/RW/USA and Corr.1, adopted 22 December 2008
EC – Bed Linen Appellate Body Report, European Communities – Anti‑Dumping Duties on Imports of Cotton‑Type Bed Linen from India, WT/DS141/AB/R, adopted 12 March 2001, DSR 2001:V, 2049
EC – Bed Linen (Article 21.5 – India) Appellate Body Report, European Communities – Anti‑Dumping Duties on Imports of Cotton‑Type Bed Linen from India – Recourse to Article 21.5 of the DSUby India, WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, 965
EC – Computer Equipment Appellate Body Report, European Communities – Customs Classification of Certain Computer Equipment, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851
EC – Countervailing Measures on DRAM Chips Panel Report, European Communities – Countervailing Measures on Dynamic Random Access Memory Chips from Korea, WT/DS299/R, adopted 3 August 2005, DSR 2005:XVIII, 8671
EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the Importation of Certain Poultry Products, WT/DS69/AB/R, adopted 23 July 1998, DSR 1998:V, 2031
EC – Sardines Appellate Body Report, European Communities – Trade Description of Sardines, WT/DS231/AB/R, adopted 23 October 2002, DSR 2002:VIII, 3359
EC – Selected Customs Matters Appellate Body Report, European Communities – Selected Customs Matters, WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, 3791
EC – Tube or Pipe Fittings Appellate Body Report, European Communities – Anti‑Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/AB/R, adopted 18 August 2003, DSR 2003:VI, 2613
EC and certain member States – Large Civil Aircraft Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1 June 2011
EC and certain member States – Large Civil Aircraft Panel Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as modified by Appellate Body Report, WT/DS316/AB/R
Guatemala – Cement I Appellate Body Report, Guatemala – Anti‑Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998, DSR 1998:IX, 3767
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, 9
India – Quantitative Restrictions Appellate Body Report, India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/AB/R, adopted 22 September 1999, DSR 1999:IV, 1763
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 and 2, adopted 23 July 1998, and Corr. 3 and 4, DSR 1998:VI, 2201
Japan – Agricultural Products II Appellate Body Report, Japan – Measures Affecting Agricultural Products, WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, 277
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97
Japan – Apples Appellate Body Report, Japan – Measures Affecting the Importation of Apples, WT/DS245/AB/R, adopted 10 December 2003, DSR 2003:IX, 4391
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random Access Memories from Korea, WT/DS336/AB/R and Corr.1, adopted 17 December 2007, DSR 2007:VII, 2703
Japan – DRAMs (Korea) Panel Report, Japan – Countervailing Duties on Dynamic Random Access Memories from Korea, WT/DS336/R, adopted 17 December 2007, as modified by Appellate Body Report WT/DS336/AB/R, DSR 2007:VII, 2805
Korea – Alcoholic Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3
Korea – Commercial Vessels Panel Report, Korea – Measures Affecting Trade in Commercial Vessels, WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, 3
Korea – Various Measures on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, 5
Mexico – Anti‑Dumping Measures on Rice Appellate Body Report, Mexico – Definitive Anti‑Dumping Measures on Beef and Rice, Complaint with Respect to Rice, WT/DS295/AB/R, adopted 20 December 2005, DSR 2005:XXII, 10853
Mexico – Corn Syrup (Article 21.5 – US) Appellate Body Report, Mexico – Anti‑Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSUby the United States, WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6675
Norway – Trondheim Toll Ring GATT Panel Report, Panel on Norwegian Procurement of Toll Collection Equipment for the City of Trondheim, GPR.DS2/R, adopted 13 May 1992, BISD 40S/319
Thailand – Cigarettes (Philippines) Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, WT/DS371/AB/R, adopted 15 July 2011
US – Anti-Dumping and Countervailing Duties (China) Appellate Body Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, adopted 25 March 2011
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain Corrosion‑Resistant Carbon Steel Flat Products from Germany, WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX, 3779
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009
US – Continued Zeroing Panel Report, United States – Continued Existence and Application of Zeroing Methodology, WT/DS350/R, adopted 19 February 2009, as modified as Appellate Body Report WT/DS350/AB/R
US – Countervailing Duty Investigation on DRAMS Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, 8131
US – Countervailing Measures on Certain EC Products Appellate Body Report, United States – Countervailing Measures Concerning Certain Products from the European Communities, WT/DS212/AB/R, adopted 8 January 2003, DSR 2003:I, 5
US – Export Restraints Panel Report, United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R and Corr.2, adopted 23 August 2001, DSR 2001:XI, 5767
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 1619
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, 1675
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, 55
US – FSC (Article 21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body Report WT/DS108/AB/RW, DSR 2002:I, 119
US – FSC (Article 21.5 – EC II) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW2, adopted 14 March 2006, DSR 2006:XI, 4721
US – FSC (Article 21.5 – EC II) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/RW2, adopted 14 March 2006, as upheld by Appellate Body Report WT/DS108/AB/RW2, DSR 2006:XI, 4761
US – FSC (Article 22.6 – US) Decision by the Arbitrator, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, WT/DS108/ARB, 30 August 2002, DSR 2002:VI, 2517
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross‑Border Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, 5663 (Corr.1, DSR 2006:XII, 5475)
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3
US – Hot‑Rolled Steel Appellate Body Report, United States – Anti‑Dumping Measures on Certain Hot‑Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697
US – Large Civil Aircraft United States – Measures Affecting Trade in Large Civil Aircraft, WT/DS317
US – Large Civil Aircraft (2nd complaint) Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/R, circulated to WTO Members 31 March 2011
US – Line Pipe Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/AB/R, adopted 8 March 2002, DSR 2002:IV, 1403
US – Oil Country Tubular Goods Sunset Reviews Appellate Body Report, United States – Sunset Reviews of Anti‑Dumping Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, 3257
US – Section 211 Appropriations Act Appellate Body Report, United States – Section 211 Omnibus Appropriations Act of 1998, WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, 589
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 2755
US – Softwood Lumber III Panel Report, United States – Preliminary Determinations with Respect to Certain Softwood Lumber from Canada, WT/DS236/R, adopted 1 November 2002, DSR 2002:IX, 3597
US – Softwood Lumber IV Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, 571
US – Softwood Lumber VI (Article 21.5 – Canada) Appellate Body Report, United States – Investigation of the International Trade Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the DSU by Canada, WT/DS277/AB/RW, adopted 9 May 2006, and Corr.1, DSR 2006:XI, 4865
US – Sonar Mapping GATT Panel Report, United States – Procurement of a Sonar Mapping System, GPR.DS1/R, 23 April 1992, unadopted
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003, DSR 2003:VII, 3117
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, 3
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R, Corr.1, and Add.1 to Add.3, adopted 21 March 2005, as modified by Appellate Body Report WT/DS267/AB/R, DSR 2005:II, 299
US – Upland Cotton (Article 21.5 – Brazil) Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil, WT/DS267/AB/RW, adopted 20 June 2008, DSR 2008:III, 809
US – Upland Cotton (Article 21.5 – Brazil) Panel Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil, WT/DS267/RW and Corr.1, adopted 20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW, DSR 2008:III, 997 to DSR 2008:VI, 2013
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R, adopted 19 January 2001, DSR 2001:II, 717
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, adopted 23 May 1997, and Corr.1, DSR 1997:I, 323

ABBREVIATIONS

AbbreviationDescription
1983 Presidential Memorandum Memorandum to the Heads of Executive Departments and Agencies: Government Patent Policy, Public Papers 248, 18 February 1983 (Panel Exhibit EC-560)
1987 Executive Order Executive Order 12591, Facilitating Access to Science and Technology, 10 April 1987 (Panel Exhibit EC-561)
1992 Agreement Agreement between the European Economic Community and the Government of the United States of America concerning the application of the GATT Agreement on Trade in Civil Aircraft on trade in large civil aircraft, done at Brussels on 17 July 1992, Official Journal of the European Union, L Series, No. 301 (17 October 1992) 32
ACT programme NASA Advanced Composites Technology Program
Additional Procedures Additional Procedures to Protect Sensitive Information adopted by the Appellate Body Division in its Procedural Ruling dated 15 April 2011 (contained in Annex III to this Report)
AJCA American Jobs Creation Act of 2004, Public Law No. 108-357, 118 Stat. 1418 (Panel Exhibit EC-626)
Anti-Dumping AgreementAgreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
AS programme NASA Aviation Safety Program
AST programme NASA Advanced Subsonic Technology Program
ATCAS Advanced Composite Technology Fuselage Program
ATP USDOC Advanced Technology Program
B&O business and occupation
B&P bid and proposal
Bayh-Dole Act Patent and Trademark Law Amendments Act of 1980, codified at United States Code, Title 35, chapter 18, sections 200‑212 (Patent Rights in Inventions Made with Federal Assistance) (Panel Exhibit EC-558)
BCA Boeing Commercial Airplanes
BCI business confidential information
Board NASA Inventions and Contributions Board
Cabral model Economic model developed by Luis M.B. Cabral, Professor of Economics at New York University's Stern School of Business, in the Cabral Report
Cabral Report Professor L.M.B. Cabral, "Impact of Development Subsidies Granted to Boeing" (New York University and CEPR, March 2007) (Panel Exhibit EC-4)
CHRA Corporate Headquarters Relocation Act of 2001, Illinois Public Act 92‑0207 (Panel Exhibit EC‑216)
DSB Dispute Settlement Body
DUS&T programme USDOD Dual Use Science and Technology Program
EDGE Economic Development for a Growing Economy
ETI extraterritorial income
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of 2000, Public Law No. 106-519, 114 Stat. 2423 (Panel Exhibit EC-625)
FAR Federal Acquisition Regulation
FIP foreground intellectual property
FPDS Federal Procurement Data Base
FPDS-NG Federal Procurement Data Base – Next Generation
FSC Foreign Sales Corporation
House Bill 2294 Washington State House Bill 2294, 58th Legislature, 2nd Special Session (Washington, 2003) (Panel Exhibit EC-54)
HPCC programme NASA High Performance Computing and Communications Program
HSBI highly sensitive business information
HSR programme NASA High-Speed Research Program
IDS Integrated Defense Systems
ILFC International Lease Finance Corporation
IR&D independent research and development
IRBs industrial revenue bonds
ITAR International Traffic in Arms Regulations
ITR International Trade Resources
JAL Japan Airlines
KDFA bonds Kansas Development Finance Authority Bonds
LA/MSF launch aid/member State financing
LCA large civil aircraft
LCF Boeing 747 large cargo freighter
LERD Limited Exclusive Rights Data
ManTech programme USDOD Manufacturing Technology Program
MSA Project Olympus Master Site Development and Location Agreement between the Boeing Company and the State of Washington, County of Snohomish, City of Everett and Certain Other Governmental Units and Authorities of or in the State of Washington, 19 December 2003 (Panel Exhibit EC-58)
NASA United States National Aeronautics and Space Administration
OTAs other transaction agreements
Panel Report Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/R
Peisen Study Peisen et al., Case Studies: Time Required to Mature Aeronautic Technologies to Operational Readiness (SAIC and GRA, Inc., November 1999) (Panel Exhibit EC‑795)
QAT programme NASA Quiet Aircraft Technology Program
R&D research and development
R&T Base programme NASA Research and Technology Base Program
R&TD research and technological development
RDT&E research, development, test, and evaluation
RTM resin transfer moulding
SALE Singapore Aircraft Leasing Enterprise
SCM AgreementAgreement on Subsidies and Countervailing Measures
Space Act National Aeronautics and Space Act of 1958, Public Law No. 85-568, as amended (Panel Exhibit EC-286)
Space Act Agreements agreements between NASA and Boeing undertaken pursuant to NASA's authority under the Space Act
Spirit Spirit AeroSystems
Subsidies Committee Committee on Subsidies and Countervailing Measures
TIPRA Tax Increase Prevention and Reconciliation Act of 2005, Public Law No. 109-222, 120 Stat. 345 (Panel Exhibit EC-627)
Tokyo Round Subsidies Code Tokyo Round Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade, BISD 26S/56, entered into force 1 January 1980
TRL technology readiness level
USDOC United States Department of Commerce
USDOD United States Department of Defense
USDOL United States Department of Labor
Vienna ConventionVienna Convention on the Law of Treaties, done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials 679
VS programme NASA Vehicle Systems Program
Working ProceduresWorking Procedures for Appellate Review, WT/AB/WP/6, 16 August 2010
WTO World Trade Organization
WTO AgreementMarrakesh Agreement Establishing the World Trade Organization

I. INTRODUCTION

2.
The European Communities' claims before the Panel related to measures from three US States and municipalities therein, as well as to a number of US Federal Government measures, all allegedly providing subsidies to Boeing, as follows5:

(a) State and local measures:

(i) State of Washington and municipalities therein: the provision of tax incentives by the State of Washington through five measures under House Bill 22946 ("House Bill 2294"); the provision of tax reductions from the City of Everett's business and occupation ("B&O") tax pursuant to Ordinance No. 2759-047; and the provision of various incentives, including training facilities and infrastructure improvements, in connection with the production of Boeing's 787 under the Project Olympus Master Site Development and Location Agreement between the Boeing Company and the State of Washington (the "MSA")8;

(ii) State of Kansas and municipalities therein: the provision by the City of Wichita of property and sales tax abatements through the issuance of industrial revenue bonds ("IRBs")9; and the issuance by the State of Kansas of Kansas Development Finance Authority Bonds ("KDFA bonds") to fund the development and production of a portion of the fuselage for Boeing's 787 in Wichita, along with payments by the State of Kansas of the interest on such bonds10; and

(iii) State of Illinois and municipalities therein: the provision by Cook County and the City of Chicago of four separate incentives in consideration for Boeing's decision to relocate its corporate headquarters from Seattle, Washington State to Chicago in 200111; and

(b) Federal measures:

(i) US National Aeronautics and Space Administration ("NASA"): payments to Boeing and the provision of access to NASA facilities, equipment, and employees pursuant to contracts and agreements entered into under eight aeronautics research and development ("R&D") programmes12;

(ii) US Department of Defense ("USDOD"): payments to Boeing and the provision of access to USDOD facilities for aeronautics R&D relating to "dual use" technologies, pursuant to contracts and agreements entered into under 23 research, development, test, and evaluation ("RDT&E") programmes13;

(iii) NASA/USDOD: the allocation of intellectual property rights to Boeing under contracts and agreements entered into with NASA and the USDOD14; and payments by NASA and the USDOD for independent research and development ("IR&D") expenditures and bid and proposal ("B&P") reimbursements, notably relating to basic research, applied research, development, and systems and other concept formulation studies15;

(iv) US Department of Commerce ("USDOC"): payments to Boeing and the provision of access to USDOC facilities, equipment, and employees to perform aeronautics R&D under eight Advanced Technology Program ("ATP") projects, falling into three general categories16;

(v) US Department of Labor ("USDOL"): a payment of $1.5 million, made to Edmonds Community College under the High Growth Job Training Initiative, for the training of aerospace industry workers for the development and production of Boeing's 78717; and

(vi) Foreign Sales Corporation ("FSC") / extraterritorial income ("ETI") and successor legislation: the provision of federal tax exemptions to Boeing under the original provisions of the US Internal Revenue Code relating to foreign sales corporations and successor legislative acts, including grandfathering clauses and transitional rules.18

3.
According to the European Communities, all of the above measures provided Boeing's LCA division with subsidies amounting to $19.1 billion over the period 1989-2006.19

A. THE EUROPEAN COMMUNITIES' CLAIMS BEFORE THE PANEL

4.
The European Communities requested the Panel to find that the United States acted inconsistently with its obligations under the SCM Agreement. First, the European Communities submitted that the State of Washington's House Bill 2294 tax incentives and the FSC and ETI federal taxation schemes constitute prohibited subsidies, within the meaning of Article 3.1(a) and in violation of Article 3.2 of the SCM Agreement.20
5.
Second, the European Communities argued that, through various measures provided by the US Federal Government and the States of Washington, Kansas, and Illinois, and municipalities therein, the United States provided actionable subsidies to Boeing's LCA division, which caused serious prejudice to the interests of the European Communities, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement.21 In particular, the European Communities requested the Panel to find that serious prejudice was caused by means of:

(a) significant price suppression, within the meaning of Article 6.3(c) of the SCM Agreement, with respect to orders of Airbus' A330, Original A350, A350XWB‑800, A320, and A340 families of LCA, or, in the alternative, threat of significant price suppression with respect to deliveries of Airbus' A330, A350XWB‑800, A320, and A340 families of LCA22;

(b) significant lost sales, within the meaning of Article 6.3(c) of the SCM Agreement, with respect to orders of Airbus' A330, Original A350, A320, and A340 families of LCA, or, in the alternative, threat of significant lost sales with respect to deliveries of Airbus' A330, A320, and A340 families of LCA23;

(c) displacement and impedance, within the meaning of Article 6.3(a) of the SCM Agreement, with respect to orders of Airbus' A330 and Original A350 families of LCA, or, in the alternative, threat of displacement or impedance with respect to deliveries of Airbus' A330 and A350XWB-800 families of LCA24;

(d) displacement and impedance, within the meaning of Article 6.3(b) of the SCM Agreement, with respect to orders of Airbus' A330, Original A350, A320, and A340 families of LCA, or, in the alternative, threat of displacement or impedance with respect to deliveries of Airbus' A330, A350XWB-800, A320, and A340 families of LCA25; and

(e) threat of significant price suppression with respect to future orders of Airbus' A330, A350XWB-800, A320, and A350XWB-900/1000 families of LCA.26

6.
Third, the European Communities contended that the United States acted inconsistently with its obligations regarding support to the LCA industry, as set forth in the 1992 Agreement between the European Economic Community and the Government of the United States of America concerning the application of the GATT Agreement on Trade in Civil Aircraft on trade in large civil aircraft27 (the "1992 Agreement"), and that the United States' breach of that Agreement constitutes serious prejudice to the European Communities' interests, within the meaning of Article 5(c) of the SCM Agreement.28
7.
On 24 November 2006, the European Communities filed a request for preliminary rulings concerning the information-gathering procedure contained in Annex V to the SCM Agreement. The European Communities submitted two alternative requests. First, it requested the Panel to rule that the Annex V procedure had been initiated and that, consequently, the United States had an obligation to respond to certain questions put to it by the European Communities in a communication dated 25 May 2006. In the alternative, the European Communities asked the Panel to exercise its discretion under Article 13 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") to put some or all of these questions to the United States.29

B. THE PANEL'S FINDINGS

8.
During the course of the Panel proceedings, the Panel adopted additional procedures for the protection of business confidential information ("BCI") and highly sensitive business information ("HSBI"), and issued a number of rulings relating to these procedures and other issues.30 On 30 July 2007, the Panel issued a Preliminary Ruling declining the requests that had been made by the European Communities relating to the information-gathering procedure set out in Annex V to the SCM Agreement.31 The Panel considered that initiation of an Annex V procedure requires some form of action on the part of the Dispute Settlement Body ("DSB").32 Having examined the minutes of the various DSB meetings where the European Communities' request to initiate such a procedure was considered, the Panel found it "clear" that "the DSB never took any action to initiate an Annex V procedure", or designate a DSB representative, as required by Annex V.33 Accordingly, the Panel denied the European Communities' request to rule that an Annex V procedure had been initiated, as well as various additional requests that were dependent upon that request.34 The Panel also declined the European Communities' alternative request, explaining that it did not, in the circumstances of this dispute, consider it necessary or appropriate to exercise its discretion under Article 13 of the DSU to seek information from the United States before having reviewed the parties' first written submissions.35
9.
The Panel Report was circulated to Members of the World Trade Organization (the "WTO") on 31 March 2011. In its Report, the Panel found the following state and local measures to constitute specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement36:

(a) State of Washington and municipalities therein: (i) the Washington State B&O tax rate reduction provided for in House Bill 2294; (ii) the B&O tax credits for preproduction development, computer software and hardware, and property taxes provided for in House Bill 2294; (iii) the sales and use tax exemptions for computer hardware, peripherals, and software provided for in House Bill 229437; (iv) the City of Everett B&O tax rate reduction38; and (v) the workforce development programme and the Employment Resource Center provided under the MSA39;

(b) State of Kansas and municipalities therein: the state and local property and sales tax abatements granted to Boeing through the issuance of IRBs40; and

(c) State of Illinois and municipalities therein: (i) the reimbursement of a portion of Boeing's relocation expenses provided for in the Corporate Headquarters Relocation Act of 200141 (the "CHRA"); (ii) the 15-year Economic Development for a Growing Economy ("EDGE") tax credits provided for in the CHRA; (iii) the abatement or refund of a portion of Boeing's property taxes provided for in the CHRA; and (iv) the payment to retire the lease of the previous tenant of Boeing's new headquarters building.42

10.
The Panel was not satisfied, however, that the European Communities had established that the following state measures constitute specific subsidies within the meaning of the SCM Agreement: (i) the Washington State sales tax exemptions for construction services and equipment, the leasehold tax exemption, and the property tax exemption granted pursuant to House Bill 229443; (ii) the measures—other than the workforce development programme and the Employment Resource Center—granted pursuant to the MSA44; or (iii) the State of Kansas' issuance of KDFA bonds.45
11.
The Panel also found the following US Federal Government measures to constitute specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement:

(a) NASA: (i) the payments made to Boeing pursuant to procurement contracts entered into under the eight aeronautics R&D programmes at issue; and (ii) the access to NASA facilities, equipment, and employees provided to Boeing pursuant to procurement contracts and agreements under the National Aeronautics and Space Act of 195846 (the "Space Act") entered into under the eight aeronautics R&D programmes at issue ("Space Act Agreements")47;

(b) USDOD: (i) the payments made to Boeing pursuant to assistance instruments entered into under the 23 RDT&E programmes at issue; and (ii) the access to USDOD facilities provided to Boeing pursuant to assistance instruments entered into under the 23 RDT&E programmes at issue48; and

(c) FSC/ETI and successor legislation: the tax exemptions and tax exclusions provided to Boeing under FSC/ETI legislation, including the transition and grandfathering provisions of the FSC Repeal and Extraterritorial Income Exclusion Act of 200049 (the "ETI Act") and the American Jobs Creation Act of 200450 (the "AJCA").51

12.
The Panel was not persuaded that the European Communities had demonstrated that the following federal measures constitute specific subsidies: (i) the USDOD's payments to Boeing pursuant to procurement contracts under the 23 aeronautics RDT&E programmes at issue52; (ii) the USDOD's grant of access to government facilities pursuant to procurement contracts under the 23 aeronautics RDT&E programmes at issue53; (iii) the USDOC's payments to joint ventures/consortia in which Boeing participated through the ATP54; (iv) the allocation of intellectual property rights under NASA/USDOD R&D procurement contracts and agreements55; (v) the reimbursement of IR&D and B&P expenses under NASA/USDOD R&D procurement contracts and agreements56; or (vi) the USDOL's payment to Edmonds Community College under the High Growth Job Training Initiative.57
13.
The Panel further found that the FSC/ETI and successor act subsidies constitute prohibited export subsidies within the meaning of Articles 3.1(a) and 3.2 of the SCM Agreement.58 However, the Panel considered that the European Communities had failed to demonstrate that the Washington State tax measures provided for in House Bill 2294 are inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.59
14.
The Panel determined that the above measures provided Boeing's LCA division with subsidies amounting to "at least $5.3 billion" over the period 1989-2006.60 The Panel declined to take account of the estimated future subsidy amounts associated with these measures.61
15.
At the outset of its analysis of the European Communities' claims of serious prejudice, the Panel made a number of findings regarding the relevant "markets", "subsidized products", and "like products" for purposes of its analysis. The parties agreed, and the Panel found, that "the LCA market is a global market geographically".62 The European Communities further divided the global LCA market into five market segments, or product markets, on the basis of the flight range and seating capacity of the various LCA families.63 Its serious prejudice claim focused on three of these product markets: (i) the 100-200 seat LCA market; (ii) the 200-300 seat LCA market; and (iii) the 300-400 seat LCA market.64 The relevant Boeing "subsidized product(s)" and Airbus "like product(s)" in each market are set out at Table 3 in paragraph 897 of this Report. The United States accepted the European Communities' division of the market as the basis for evaluating the European Communities' serious prejudice claim65, and so did the Panel.66 The Panel further expressed the view that, provided that the European Communities demonstrated one of the alleged forms of serious prejudice in subparagraphs (a) through (c) of Article 6.3 in relation to a particular Boeing subsidized LCA and a corresponding Airbus like product, it would establish serious prejudice to the European Communities' LCA-related interests for purposes of Article 5(c) of the SCM Agreement.67
16.
The Panel further noted that, in presenting its arguments, the European Communities drew a distinction "based on the nature of the subsidies" between, on the one hand, the effects of the subsidies benefiting Boeing's 787 family of LCA and, on the other hand, the effects of the subsidies benefiting Boeing's 737NG and 777 families of LCA.68 With regard to the 787, which competes in the 200-300 seat LCA market, the European Communities argued that the subsidies have two principal effects, whereas, with respect to the 737NG and 777, which compete in the 100-200 seat and the 300‑400 seat LCA markets, respectively, the subsidies were alleged to have only one of those effects.69 For all three product markets, the European Communities alleged that all of the subsidies have "price effects" because they provide Boeing with the ability to charge lower prices either by reducing Boeing's marginal unit costs or by increasing Boeing's non-operating cash flow.70 For the 200‑300 seat LCA market, the European Communities alleged that, in addition to those price effects, the aeronautics R&D subsidies have "technology effects" in that they "have helped Boeing develop, launch and produce a technologically-advanced 200-300 seat LCA much more quickly than it could have on its own".71 Thus, the Panel understood the European Communities to argue that the subsidies cause significant price suppression, significant lost sales, and displacement and impedance (and a threat thereof), in the 200‑300 seat LCA market through both the technology effects and the price effects that they have on Boeing's commercial behaviour with respect to the 787.72 For the 100‑200 seat and 300‑400 seat LCA markets, the Panel understood the European Communities to argue that the subsidies cause the same market phenomena, but only through the price effects on Boeing's commercial behaviour with respect to the 737NG and 777.73
17.
The Panel concluded as follows with respect to the European Communities' claims concerning the technology effects of the aeronautics R&D subsidies:

{T}he effect of the aeronautics R&D subsidies is a threat of displacement and impedance of European Communities' exports from third country markets within the meaning of Article 6.3(b) of the SCM Agreement, with respect to the 200‑300 seat wide-body LCA product market, and significant lost sales and significant price suppression, within the meaning of Article 6.3(c) of the SCM Agreement with respect to that product market, each of which constitute serious prejudice to the interests of the European Communities within the meaning of Article 5(c) of the SCM Agreement.74

18.
As regards the European Communities' claim of price effects of the FSC/ETI subsidies and the Washington State and City of Everett B&O tax rate reductions (the "tied tax subsidies"):

... the Panel {was} satisfied that the effects of the FSC/ETI subsidies and the Washington State B&O tax subsidies in the 100-200 seat single aisle LCA product market were to significantly suppress Airbus' prices in sales in which it competed against Boeing and to cause Airbus to lose significant sales, and to displace and impede European Communities' exports from third country markets in that product market. {The Panel was} also satisfied that the effects of the FSC/ETI subsidies, the Washington State B&O tax subsidies and the City of Everett B&O tax subsidies in the 300-400 seat wide-body LCA product market were to significantly suppress Airbus' prices in sales in which it competed against Boeing and to cause Airbus to lose significant sales, and to displace and impede European Communities' exports from third country markets in that product market.75

19.
In its assessment of the effects of the subsidies in the 200-300 seat LCA market, the Panel observed that the NASA and USDOD aeronautics R&D subsidies, on the one hand, and the State of Washington and City of Everett B&O tax rate reductions76, on the other hand, "operate through entirely distinct causal mechanisms".77 Given the different ways in which these two groups of subsidies operate, the Panel considered that it was not "appropriate to aggregate the effects of the B&O tax subsidies on Boeing's pricing of the 787 with the effects of the aeronautics R&D subsidies on Boeing's development of technologies applied to the 787".78 The Panel therefore evaluated the effects of the two B&O tax rate reductions on their own, and found that there was "insufficient evidence before {it} … to conclude that these subsidies are of a magnitude that would enable them, on their own, to have such an effect on Boeing's prices of the 787 as would lead to a finding that their effects in the 200‑300 seat wide-body market were significant price suppression, significant lost sales or displacement or impedance of European Communities imports into the United States or exports to third countries."79
20.
With respect to the remaining eight subsidies that the Panel found to be specific80, the Panel was not satisfied that the European Communities had established that, through their effects on Boeing's LCA pricing behaviour, these subsidies have caused serious prejudice to the European Communities' interests in any of the three LCA product markets relevant to this dispute.81
21.
The Panel exercised judicial economy with respect to the European Communities' claim that certain of the subsidies at issue threaten to cause significant price suppression with respect to future orders of Airbus LCA82, and with respect to the European Communities' claim that the United States' violation of the 1992 Agreement constitutes serious prejudice to the European Communities' interests within the meaning of Article 5(c) of the SCM Agreement.83

C. APPELLATE PROCEEDINGS

22.
On 1 April 2011, the European Union notified the DSB of its intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel, pursuant to Articles 16.4 and 17 of the DSU, and filed a Notice of Appeal84 pursuant to Rule 20 of the Working Procedures for Appellate Review85 (the "Working Procedures").
23.
Also on 1 April 2011, the Appellate Body received a request from the European Union that the Appellate Body adopt additional procedures to protect BCI and HSBI in these appellate proceedings.86 The European Union explained that the reasons for this request were substantially the same as the reasons given by the participants in EC and certain member States – Large Civil Aircraft, namely, that disclosure of confidential information (which in this dispute includes company-specific data on productivity, costs, prices, sales campaigns, commercial agreements, and privileged advice) could be "severely prejudicial" to the originators of the information, that is, to the manufacturers of LCA, as well as their customers and suppliers.87 The European Union requested the adoption of a procedural ruling with substantially the same terms as the one adopted by the Appellate Body in EC and certain member States – Large Civil Aircraft. On the same day, the Appellate Body Division selected to hear this appeal invited the United States and the third parties to comment in writing on the European Union's request, and informed the participants and third parties of its decision to adopt temporary precautions to protect confidential information. Given that the Panel record was, in accordance with Rule 25 of the Working Procedures, to be transmitted to the Appellate Body immediately upon the filing of a Notice of Appeal, the Division decided to provide additional protection to all BCI and HSBI transmitted to the Appellate Body as part of that record, pending its final decision on the European Union's request.
24.
Written comments were received from the United States on 6 April 2011 and from Australia, Brazil, Canada, China, and Japan on 12 April 2011. The United States shared the European Union's view that it was necessary for the Division to adopt BCI/HSBI procedures in this appeal. Overall, the United States agreed that the Appellate Body procedural ruling in EC and certain member States – Large Civil Aircraft would serve as an appropriate basis for a procedural ruling on the protection of sensitive information in this appeal, with certain modifications made in the light of the previous experience. The third participants expressed their support for, or did not oppose, the request of the European Union, and suggested certain modifications to the proposed procedures in order to ensure that the rights of third participants to participate meaningfully in these appellate proceedings would be fully protected. On 15 April 2011, the Division issued a Procedural Ruling adopting Additional Procedures to Protect Sensitive Information (the "Additional Procedures"), pursuant to Rule 16(1) of the Working Procedures. The Procedural Ruling and Additional Procedures are attached as Annex III to this Report.
25.
On 19 April 2011, pursuant to paragraph 19(xiv) of the Additional Procedures, the participants each provided a list of persons designated as "BCI-Approved Persons" and persons designated as "HSBI-Approved Persons". On the same day, in accordance with paragraph 19(xvi) of the Additional Procedures, the third participants each provided a list of up to eight individuals designated as "Third Participant BCI-Approved Persons". Requests to change the BCI/HSBI Approved Persons and Third Participants BCI-Approved Persons lists were subsequently submitted by the European Union, the United States, Australia, Brazil, Canada, and Korea.88 The Division provided the participants and third participants with the opportunity to comment on each request. No objections were made and all of the requests were authorized by the Division.89
26.
Upon receipt of the European Union's request for additional procedures for the protection of BCI and HSBI in these proceedings, the Division decided to suspend the deadlines that would otherwise apply under the Working Procedures for the filing of a Notice of Other Appeal and for the filing of written submissions. On 20 April 2011, after issuing its Procedural Ruling, the Division provided the participants and third participants the deadlines for filing written submissions, pursuant to Rule 26 of the Working Procedures. In that communication, the Division also invited the participants to address in their appellees' submissions, and the third participants in their written submissions, the implications for the legal issues in this appeal arising from the Appellate Body report in EC and certain member States – Large Civil Aircraft, which was subsequently circulated on 18 May 2011.
27.
The European Union filed an appellant's submission on 21 April 2011.90 On 28 April 2011, the United States notified the DSB of its intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations developed by the Panel, pursuant to Articles 16.4 and 17 of the DSU, and filed a Notice of Other Appeal91 pursuant to Rules 23 and 26(2) of the Working Procedures. On the same day, the United States filed an other appellant's submission.92
29.
On 15 June 2011, the European Union and the United States each filed an appellee's submission93 and, on 23 June 2011, Australia, Brazil, Canada, China, Japan, and Korea each filed a third participant's submission.94
30.
On 4 July 2011, the Chair of the Appellate Body informed the Chair of the DSB that, due to the considerable size of the record and complexity of the appeal, the need to hold multiple sessions of the oral hearing, and the overall workload of the Appellate Body, the Appellate Body would not be able to circulate its Report by 31 May 2011—that is, by the expiration of the 60‑day period provided under Article 17.5 of the DSU. The Chair of the DSB was also informed that the Appellate Body would hold a first session of the oral hearing in August and a second session in October 2011, and would provide thereafter an estimate for when its Report would be circulated.95
31.
By joint letter dated 11 July 2011, the participants requested that the oral hearing in this appeal be opened to public observation to the extent that this would be possible given the need for protection of sensitive information. The participants suggested that the Division adopt a further procedural ruling pursuant to Rule 16(1) of the Working Procedures to regulate the conduct of the oral hearing in the light of the request for public observation and the Additional Procedures, and proposed specific modalities for that purpose. On 12 July 2011, the Division invited the third participants to comment on the participants' request and proposed modalities. On 15 July 2011, Canada and China submitted comments on the participants' request to open the oral hearing to public observation. Canada agreed with the joint proposal of the participants that the Division adopt the same additional procedures that were adopted in EC and certain member States – Large Civil Aircraft. China expressed its wish that the Division follow the same practice as in EC and certain member States – Large Civil Aircraft to allow third participants the opportunity to request confidential treatment of their oral statements. On 26 July 2011, the Division issued a Procedural Ruling authorizing the participants' joint request for opening the hearing to public observation via closed-circuit broadcasting and adopted Additional Procedures on the Conduct of the Oral Hearing, including the protection of certain sensitive information during the oral hearing. The Procedural Ruling is attached as Annex IV to this Report.
32.
The oral hearing in this appeal took place in two sessions: the first on 16-19 August 2011, and the second on 11-14 October 2011. Pursuant to the Procedural Ruling of 26 July 2011, the participants and third participants did not refer to any BCI or HSBI in their opening statements at either session of the oral hearing. The opening statements of the participants and third participants, with the exception of China and Korea, were videotaped at both the first and second sessions of the oral hearing. Upon confirmation that no BCI or HSBI had been inadvertently uttered, the videotapes of the opening statements were broadcast on 23 August and 18 October 2011 to those members of the public who had registered for the viewing. No participant or third participant made a closing statement at either session of the oral hearing.
33.
Following the first session of the hearing, the Division invited the participants and third participants to submit additional written memoranda, pursuant to Rule 28 of the Working Procedures. The European Union and the United States each submitted an additional memorandum on 5 September 2011, and Brazil, Canada, Japan, and Korea each submitted an additional memorandum on 12 September 2011. The participants and third participants were given an opportunity at the second session of the oral hearing to make comments on the others' additional memoranda.
34.
Pursuant to paragraph 19(xiii) of the Procedural Ruling of 15 April 2011, the Division informed the participants and third participants, on 23 February 2012, that it had found it necessary to include in the Appellate Body Report some references to information that was treated by the Panel as BCI or HSBI. Also pursuant to paragraph 19(xiii) of the Procedural Ruling, an advance copy of the Appellate Body Report was provided to the European Union and the United States on 29 February 2012. Both participants were requested to indicate, by 5 March 2012, whether there was a continuing need to treat all of the business sensitive information in the same manner as the Panel, and whether any BCI or HSBI had been included in the Appellate Body Report without having been identified as such. On 5 March 2012, the European Union indicated that it had not identified any BCI or HSBI that was not designated as such in the Appellate Body Report, and that it was willing to remove BCI protection with respect to two sentences consisting of EU BCI. On that date, the United States identified one instance in which it considered that BCI had been inadvertently disclosed, and indicated that the relevant text should be designated as BCI, or revised so as to avoid the need for BCI protection. The United States also identified a number of instances, consisting of US BCI or EU BCI, for which it suggested, or did not object to, the removal of BCI protection. On the same day, the Division requested the participants to respond to each other's comments by 7 March 2012. On 6 March 2012, the European Union indicated that it had no objection to the United States' proposal to remove BCI protection for information that related to the United States' interests, but objected to doing so with respect to such information relating to the European Union's interests. On 7 March 2012, the United States stated that it had no objection to the removal of BCI protection for the two sentences identified by the European Union in its letter of 5 March 2012. The Division modified the one inadvertent disclosure of BCI information, as suggested by the United States, so as to avoid the need for BCI protection. The Division decided to remove BCI protection in certain instances in which the participants suggested, or did not object to, such removal.

II. ARGUMENTS OF THE PARTICIPANTS AND THE THIRD PARTICIPANTS

A. CLAIMS OF ERROR BY THE EUROPEAN UNION – APPELLANT

1. Annex V to the SCM Agreement

35.
The European Union asserts that the Panel erred by refusing to rule that the information-gathering procedure under Annex V to the SCM Agreement had been initiated, and by denying a number of related requests. The European Union submits that, in proceeding in the way it did, the Panel failed to make an objective assessment of the matter within the meaning of Article 11 of the DSU and erred in its interpretation and application of Article 7.4 the SCM Agreement and paragraph 2 of Annex V thereto. The European Union requests the Appellate Body to find that the Panel erred in not ruling on whether the Annex V procedure had been initiated, and to complete the analysis and make a finding that the Annex V procedure is initiated by negative consensus or automatically. In addition, and independently of these requests, the European Union urges the Appellate Body to "constantly bear in mind the circumstances of this case"96, in particular the withholding of information and non‑cooperation by the United States. On that basis, the Appellate Body should preclude the United States from criticizing the Panel for its assessment of the facts or drawing of factual inferences and, "{i}n case of doubt or evidentiary conflict or equipoise, the Appellate Body should rule in favour of the European Union".97
36.
In its appellant's submission, the European Union draws a distinction between DSB "action" and issues that call for a "decision" by the DSB.98 The European Union notes that, under Article 2.4 of the DSU, "decisions" require consensus, but the requirement for "actions" to occur by negative consensus permeates the DSU. By way of example, the European Union points out that the final sentence of Article 2.1 indicates that, "where the DSB 'administer{s}' dispute settlement rules, it proceeds by way of 'decisions or actions'"99; and Article 6.1 confirms that a panel is not established by a consensus decision, but by way of DSB action by negative consensus on the one condition that a request for the establishment of a panel is received, which is something different from a consensus decision. That is why a WTO document recording the establishment of the panel "in accordance with Article 6 of the DSU"100 is subsequently distributed.101 Moreover, Articles 16.4, 17.14, 22.6, and the final sentence of Article 22.7 also describe DSB actions that take place on the one condition that a request is received. Like Annex V to the SCM Agreement, the second sentence of Article 22.6 of the DSU, regarding referrals to arbitration on the level of suspension of concessions or other obligations, does not expressly refer to negative consensus. Yet, it must be the case that a Member can seek review of a request for suspension of concessions without that review being blocked by the complaining Member through a refusal to support a consensus decision.
37.
The European Union submits that this "action" versus "decision" distinction likewise applies to Annex V to the SCM Agreement. In support of its position, the European Union refers to: Article 7.4 of the SCM Agreement, which provides for the establishment of a panel "unless the DSB decides by consensus not to establish a panel"; paragraph 1 of Annex V, which states that "{e}very Member shall cooperate in the development of evidence to be examined by a panel in procedures under paragraphs 4 through 6 of Article 7"; and paragraph 2 of Annex V, which states that, "{i}n cases where matters are referred to the DSB under paragraph 4 of Article 7, the DSB shall, upon request, initiate the procedure to obtain such information".
38.
The European Union asserts that the following ten considerations relating to the text and context of Annex V support its position that action is initiated by negative consensus. First, the direct cross‑reference in paragraph 2 of Annex V to Article 7.4 of the SCM Agreement provides a "strong textual basis"102 for negative consensus to initiate an Annex V procedure, particularly in the light of the arguments made in relation to Article 22.6 of the DSU above.
39.
Second, the terms used in paragraph 2 of Annex V indicate that "the provision creates {a mandatory} obligation on the DSB to proceed according to the terms of the treaty".103 No such mandatory language is used in the DSU where decision is required by consensus. The European Union argues that "Members would not oblige the DSB to act, and yet at the same time provide the defending Member in a dispute with the means to frustrate such action".104 Such "internal incoherence" would make the treaty provision "wholly ineffective", thus, an interpretation requiring a consensus decision must be avoided.105
40.
Third, paragraph 2 of Annex V uses the term "request", which is also used in Articles 6.1, 22.6, and 22.7 of the DSU. This provides further support for mandatory DSB initiation upon the satisfaction of the one condition of receiving a request.
41.
Fourth, the ordinary meaning of the word "under" in paragraph 2 of Annex V includes "covered by", "subject to the authority".106 The initiation of an Annex V procedure is, therefore, subject to the negative consensus rule in Article 7.4 of the SCM Agreement. The references to "cases" and "matters" in paragraph 2 of Annex V also provide this link to Article 7.4.
42.
Fifth, Article 2.1 of the DSU provides that the DSB administer relevant "rules and procedures". Appendix 2 to the DSU includes Annex V to the SCM Agreement as relevant rules and procedures for DSB rulings. The use of the term "procedure" in Annex V thus "clearly falls within the scope of a DSB action by negative consensus administering the rules and procedures referred to in the DSU".107
43.
Sixth, the requirement in paragraph 1 of Annex V for every Member to cooperate in the development of evidence and comply with the procedures "informs the remainder of Annex V"108 and provides strong support for the inability of a Member to block initiation of an Annex V procedure and therefore also for mandatory action by negative consensus. Article 1.2 of the DSU requires the same interpretation in order to avoid conflict between different provisions. The European Union argues that the drafters of the SCM Agreement could not have intended to make initiation of an Annex V procedure mandatory ("the DSB shall … initiate") and at the same time enable a Member to block such initiation.
44.
Seventh, pursuant to paragraph 5 of Annex V, the information-gathering process shall be completed within 60 days from the matter's referral to the DSB. Therefore, there is an implicit assumption that an Annex V procedure will be established contemporaneously with the panel for the same "matter" following the same negative consensus action.
45.
Eighth, paragraphs 6 to 9 of Annex V in effect create penalties for the non-cooperation of a Member. Permitting a WTO Member to block initiation of an Annex V procedure by requiring a consensus decision would defeat the purpose of these provisions.
46.
Ninth, consequences for non-cooperation in countervailing duty investigations under Article 12.7 of the SCM Agreement are evidence that the drafters recognized the importance of gathering information in subsidies disputes. Therefore, in the context of subsidies disputes involving claims of serious prejudice, there is no reason why a Member should be free to prevent information-gathering with impunity.
47.
Tenth, the Appellate Body report in Canada – Aircraft confirms the general principle that Members must cooperate during information-gathering procedures, and that it may be appropriate to draw adverse inferences when they fail to do so.109
48.
The European Union contends that the Panel erroneously "re-state{d}" part of the European Communities' complaint as a request for a ruling on "a narrow factual proposition", namely, that the DSB had initiated an Annex V procedure by action by negative consensus.110 In the European Union's view, the Panel's reasoning is "circular and unreasonable"111 because the Panel used as a justification for rejecting the European Communities' request precisely what the European Communities was challenging: the absence of an Annex V procedure.
49.
The European Union also relies on the object and purpose to support its view that the initiation of the Annex V procedure "is and must be by action by negative consensus".112 It claims that the Annex V procedure is a "corollary and integral part"113 of panel establishment in a dispute settlement proceeding that is launched by negative consensus. Finding that initiation of an Annex V procedure requires decision by consensus, hence allowing a veto of the defending party, would "severely limit the ability of a complaining party to successfully bring a serious prejudice case", and the SCM Agreement "would be severely hampered".114 The European Union adds that the complaining party must have a tool to prepare its serious prejudice case by obtaining the necessary information prior to its written submissions to the panel.
50.
The European Union finds confirmation of its interpretation in the preparatory work of the SCM Agreement. In this respect, the European Union recalls that the substantive provisions of Annex V to the SCM Agreement first appeared in the third draft text circulated by the Chairman of the Negotiating Group on Subsidies and Countervailing Measures, and that "{i}t remains clear from this and subsequent drafts that the Annex V procedure was tied-to the panel request".115 In the European Union's view, this explains why, when the reference to negative consensus was subsequently added to Article 7.4 of the SCM Agreement, it was well understood that the same decision-making rule would apply to the linked Annex V procedure.
51.
The European Union characterizes as "particularly instructive"116 the fact that the Annex V procedure was added to the SCM Agreement following a proposal made by the United States. The European Union recalls that, in the Uruguay Round negotiations, the United States "eloquently explained"117 the object and purpose of its proposal, the essential elements of which were agreed to by all Members by consensus. The European Union summarizes the United States' proposal as a "wish{}" for "an information gathering procedure hand-in-hand with a panel procedure that is mandatory (that is, by negative consensus) backed up with a threat of adverse inferences in case of failure to co-operate".118
52.
In the light of the above, the European Union requests the Appellate Body to reverse the Panel's findings denying the European Communities' requests and to complete the analysis and make the following findings: (i) that the initiation of an Annex V procedure is by action by negative consensus; (ii) that, as a matter of law, all the conditions for the initiation of an Annex V procedure were fulfilled in this case, and such procedure was initiated and/or is deemed to have been initiated and/or should have been initiated; (iii) that, in refusing to cooperate in the information-gathering process, the United States failed to comply with its obligations under the first sentence of paragraph 1 of Annex V to the SCM Agreement; and (iv) that the European Communities was entitled to present its serious prejudice case based on the evidence available to it, that the Panel was entitled to complete the record as necessary relying on best information otherwise available, and that the Panel was entitled to draw adverse inferences.119
53.
At the oral hearing, the European Union placed less emphasis on the alleged distinction between DSB "actions" and "decisions". Instead, the European Union focused its arguments on the reasons why it considers that the DSB may decide to initiate Annex V procedures by negative consensus. The European Union also provided additional arguments to support its view that the Appellate Body has jurisdiction to make a ruling on this matter.

2. Financial Contribution – Scope of Article 1.1(a)(1) of the SCM Agreement

54.
The European Union requests reversal or modification of the Panel's finding that Article 1.1(a)(1) excludes "purchases of services" by a government from the scope of the SCM Agreement. However, the European Union does not request the Appellate Body to complete the analysis by examining the USDOD RDT&E programme measures that were found by the Panel to constitute purchases of services.
55.
The European Union argues that, in adopting an interpretation of Article 1.1(a)(1) that excludes purchases of services by a government from the scope of the SCM Agreement—even if those transactions included "direct transfers of funds", "provi{sion} {of} goods", or other activities specifically covered by Article 1.1(a)(1)—the Panel failed to apply properly the customary rules of treaty interpretation codified in Articles 31 to 33 of the Vienna Convention on the Law of Treaties120 (the "Vienna Convention"). The Panel's interpretation provides "a road map for entirely avoiding the disciplines of the SCM Agreement", and "would allow Members to massively distort international trade in goods, by transferring enormous amounts of funding to specific industries and companies on non‑market terms, as long as those 'transfers of funds' are pursuant to transactions properly characterised as purchases of services".121 The European Union contends that the Panel failed to consider, in a holistic manner and in accordance with Article 31(1) of the Vienna Convention, the ordinary meaning of the terms of Article 1.1(a)(1), in their context, and in the light of their object and purpose.122 In particular, the European Union objects to the Panel's evaluation of "context" and "object and purpose".
56.
The European Union recalls that the Panel derived two conclusions from the context provided by Article 1.1(a)(1)(iii) and Article 14(d) of the SCM Agreement, which reference the provision of "goods or services" and the purchase of "goods", but not the purchase of services.123 First, that the drafters intended such an exclusion, even if the transactions could be covered by other elements of the definition of financial contribution; and, second, that such an interpretation would render the term "purchases {of} goods" under Article 1.1(a)(1)(iii) inutile. The European Union notes that the Appellate Body has, in previous cases, emphasized the holistic nature of treaty interpretation and cautioned that an interpretation that excessively narrows the meaning of a term in a manner that frustrates the object and purpose of the treaty cannot constitute a "holistic" interpretation.124 In finding that the ordinary meaning of the term "direct transfer of funds" in its context excludes a significant class of direct transfers of funds (that is, those that occur pursuant to transactions properly characterized as "purchases of services"), the Panel did not rely on the context and object and purpose to "narrow the range of possible meanings of the treaty term".125 Nor did the Panel seek to "ascertain the common intention of the parties"126 to the treaty, which is the goal of treaty interpretation under Article 31 of the Vienna Convention. Instead, the Panel put aside concerns over object and purpose, and found that there is "every reason to believe"127 that future panels will somehow be able to deal effectively with "the enormous loophole potentially created by the interpretation".128
57.
The European Union further alleges that the Panel erred in concluding that the European Communities' interpretation could render the term "purchases {of} goods" "inutile".129 Specifically, the Panel failed to appreciate, as pointed out by the panel in Japan – DRAMs (Korea), that "certain … transactions might be covered simultaneously by different sub‑paragraphs of Article 1.1(a)(1)"130, and that such overlap is not unexpected. Consequently, an interpretation that would allow purchases of goods to be covered by two different subparagraphs of Article 1.1(a)(1) is neither unexpected nor discouraged in some way, and there is no need to attempt to interpret the ordinary meaning so as to avoid that result. Moreover, the text of the SCM Agreement itself acknowledges that overlaps between categories of financial contributions are an integral feature of Article 1.1(a)(1), and therefore do not indicate "inutility" of certain subparagraphs of that provision. As an illustration, the European Union notes that an equity infusion could fall both under Article 1.1(a)(1)(i) as a "direct transfer of funds", as well as under Article 1.1(a)(1)(iii) as a "purchase{} {of} goods".
58.
Moreover, the European Union asserts that the Panel also erred by dismissing the European Communities' interpretation on the ground that "the scope and coverage of Article 1.1(a)(1) of the SCM Agreement would be precisely the same if those words {i.e., 'purchases goods'} had not been added to Article 1.1(a)(1)(iii)".131 In the European Union's view, the scope of application of Article 1.1(a)(1)(iii) may serve an important purpose that is not covered under any other subparagraph of Article 1.1(a)(1).132
59.
With respect to the Panel's evaluation of the object and purpose, the European Union notes that the SCM Agreement aims to "impose multilateral disciplines on subsidies which distort international trade" in goods.133 Moreover, the Appellate Body has held that "measures that involve a service relating to a particular good"134 properly fall within the scope of the Multilateral Agreements on Trade in Goods in Annex 1A of the Marrakesh Agreement Establishing the World Trade Organization (the "WTO Agreement"). Thus, transactions properly characterized as "purchases of services" that nonetheless relate to a particular "good" should not fall outside the scope of the SCM Agreement. The Panel's approach would create "a considerable gap"135 in the coverage of the SCM Agreement as it would allow a Member to avoid entirely the SCM Agreement simply by asking for some type of service from a goods producer in exchange for something that would otherwise be considered an actionable or prohibited subsidy under Parts II and III of the SCM Agreement (whether through a transfer of funds, foregoing of government revenue otherwise due, or provision of goods or services).
60.
Furthermore, the European Union observes that, in the application of its own test to the R&D contracts and agreements in this dispute—that is, whether the service contract was principally for the benefit and use of the US Government (or unrelated third parties)136—the Panel did not eliminate the "loophole"137 created by an exclusion of purchases of services from the scope of the SCM Agreement. In the European Union's view, the Panel's test allows Members to package together in one transaction: (i) a transaction properly characterized as a "purchase of services" (whether or not for market value); and (ii) an enormous direct transfer of funds in the form of a grant.138 Even if, as the Panel noted, panels and domestic investigating authorities could detect transactions not properly characterized as "purchases of services", Members could still combine transactions properly characterized as "purchases of services" with grants in a manner that shields the grants from the disciplines of the SCM Agreement.139
61.
Finally, with respect to the supplementary means of interpretation provided for under Article 32 of the Vienna Convention, the European Union believes that the negotiating history provides "limited insight into the conclusions that can already be drawn under the Article 31 interpretation".140 Neither the Panel nor the parties could attribute any significance to the elimination of the term "purchase of services" from earlier drafts of Article 1.1(a)(1). In particular, whereas it remains unclear why the drafters omitted an explicit reference to "purchase of services", "it is unambiguously clear that the drafters didnot insert an exemption in the SCM Agreement according to which a transaction that 'involves a direct transfer of funds' or 'provi{sion} {of} goods or services other than general infrastructure'"141 would fall outside the scope of Article 1.1(a)(1) to the extent that it is also considered a "purchase of services".

3. Specificity – Allocation of Patent Rights

62.
The European Union claims that the Panel erred in its interpretation of the term "granting authority" in Article 2.1 of the SCM Agreement when it found that the "granting authority" in this case was the US Government as a whole.
63.
The European Union's asserts that the Panel did not set out a systematic interpretation of the term "granting authority" in accordance with the Vienna Convention, but rather implicitly interpreted the term as encompassing the highest authority of the US Government instead of the particular authority that actually granted the subsidies at issue. The ordinary meaning of "granting authority" is the "body or persons exercising power" that "bestow{s} or confer{s}" a subsidy "as a favour, or in answer to a request".142 In addition, different provisions of the SCM Agreement employ different terms to reference the actor at issue—for example, whereas Article 2.1 refers to "granting authority", Articles 5 and 6 use the term "Member". In the European Union's view, if the drafters of the SCM Agreement had intended Article 2.1 to focus on the activities of the government as a whole, they would have used the term "Member" in that provision as well. Thus, the use of different terms in the SCM Agreement and other WTO agreements "confirms a distinction between a 'Member', on the one hand, and 'authorities' comprising a Member's internal governmental structures, on the other"143, and the European Union therefore rejects the Panel's interpretation of "granting authority" as being equivalent to "Member". The European Union further asserts that the object and purpose of the SCM Agreement could be frustrated by an interpretation of Article 2.1 "that looks to government-wide policies of a Member, rather than the actions and legislation of the authority that actually provides the subsidy".144
64.
The European Union notes that, according to Article 2.1(a) of the SCM Agreement, either the "granting authority" or "the legislation pursuant to which the granting authority operates" can "explicitly limit{} access to a subsidy", and therefore specificity can be analyzed from either of these two points of view. Moreover, under Article 2.1(b), which was not specifically addressed by the Panel, specificity may likewise be evaluated from the perspective of either the "granting authority" or the "legislation pursuant to which the granting authority operates". The United States did not properly present a developed defence under the terms of Article 2.1(b), and the Panel did not evaluate the United States' arguments according to the terms of Article 2.1(b), nor did it make any findings that the United States had met the factual requisites of that provision. If the Panel had properly considered Article 2.1(b), "the Parties' arguments may have ultimately turned to Article 2.1(c), pursuant to which the European Union had also presented argument and evidence".145 The European Union lastly contends that, by focusing its analysis exclusively on Article 2.1(a), the Panel failed to interpret Article 2.1 in a holistic manner.
65.
The European Union submits that, as a consequence of adopting an erroneous interpretation of the term "granting authority", the Panel also erred in its application of Article 2.1 of the SCM Agreement. The European Union notes that it is undisputed that NASA has its own specific legislation and regulations concerning patent waivers. NASA's statutory basis for performing aeronautical R&D is provided by the Space Act, which specifically states that any invention made pursuant to a NASA contract "shall be the exclusive property of the United States, and if such invention is patentable a patent therefor shall be issued to the United States"146 unless waived by NASA. The European Union also notes that the Panel correctly acknowledged that, pursuant to NASA-specific regulations, NASA generally waives patent rights to contractors at their request.147 In the light of such a process of requesting and granting patent waivers, it is clear that the "granting authority" is NASA, and not the US Government as a whole, because the request to waive the patent right is made to NASA, and NASA is the body that bestows or confers the patent waiver.
66.
As regards USDOD patent transfers, the European Union submits that, when applying its interpretation of "granting authority", the Panel likewise erred in finding that USDOD patent transfers are not "specific" within the meaning of Article 2.1(a) of the SCM Agreement. The European Union recalls the uncontested fact that, as the entity that grants the R&D contracts, the USDOD need not waive or grant rights in favour of a contractor to inventions arising from USDOD-funded contracts.148 As with NASA, the USDOD is the "granting authority", because it is the body that includes in its R&D contracts the clauses providing that contractors are generally entitled to the rights from the inventions developed pursuant to these contracts, and it is also the body that chooses not to exercise its authority to remove this entitlement. The Panel found, as an alternative basis for specificity of the USDOD RDT&E programme as a whole, that "RDT&E funding goes 'predominantly' to firms in the defense industry, and this is enough to establish de facto specificity under Article 2.1(c)".149 Consequently, it is the European Union's contention that the transfers of patent rights deriving from the RDT&E funding likewise go predominantly to firms in the defence industry.150
67.
In its oral statement at the first session of the oral hearing, the European Union emphasized that it had argued before the Panel that the allocations of patent rights under NASA and USDOD contracts and agreements are specific, based on both Articles 2.1(a) and 2.1(c) of the SCM Agreement. The European Union explained that, under Article 2.1(a), it had focused on the explicit limitations in the types of R&D that NASA and USDOD could fund, and consequently the enterprises that could benefit from the patent waivers. The European Union noted that it had presented evidence to the Panel regarding the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy in accordance with Article 2.1(c). It had also argued that Boeing, together with four other companies, received up to 45% of the total USDOD R&D funding, which also supports a finding of disproportionality. The Panel failed to consider any of the European Communities' evidence and arguments regarding Article 2.1(c) and hence ignored the third set of principles in that provision. In the European Union's view, the Panel's failure to consider the actions of the authorities that exercise the discretion to grant a subsidy creates an important gap in the subsidy disciplines. In the case at issue, NASA and the USDOD had some discretion in deciding whether to waive/transfer the patent rights, and whether to enter into the R&D contracts in the first place. However, although there was a claim of de facto specificity pursuant to Article 2.1(c), the Panel came to a sudden and unexpected halt after considering the arguments under Article 2.1(a). The European Union therefore considers that the Panel failed to provide the holistic interpretation and application of Article 2.1 required by the SCM Agreement.

4. Adverse Effects

68.
The European Union requests the Appellate Body to: (i) reverse the Panel's finding that it was not "appropriate to aggregate" the effects of the B&O tax rate reductions with the effects of the aeronautics R&D subsidies in the 200-300 seat LCA market151; (ii) reverse the Panel's finding that the remaining subsidies, on their own, do not cause adverse effects152; and (iii) reverse the Panel's finding that the USDOD RDT&E programmes (other than the Manufacturing Technology Program ("ManTech programme") and the Dual Use Science and Technology Program ("DUS&T programme")) do not cause the same effects as the other aeronautics R&D subsidies, at least to the extent that the remaining USDOD RDT&E programmes are funded through assistance instruments.153 In connection with the second of these requests, the European Union further requests the Appellate Body to complete the analysis and find that, when aggregated with the tax subsidies (or the aeronautics R&D subsidies and the tax subsidies) that were found to cause adverse effects, the remaining subsidies also cause adverse effects. The European Union does not seek to have the Appellate Body complete the analysis with respect to the other two grounds of appeal.

(a) Collective assessment of the aeronautics R&D subsidies and the B&O tax rate reductions and their effects

69.
The European Union submits that the Panel erred in its interpretation and application of Articles 5 and 6.3 of the SCM Agreement when it declined to assess the cumulative effects of the B&O tax rate reductions and the aeronautics R&D subsidies in the 200-300 seat LCA market. The reason given by the Panel for assessing the effects of these two groups of subsidies separately—that the two groups of subsidies operate through "entirely distinct causal mechanisms"154—ignores the fact that both contributed to a negative commercial impact on Airbus LCA in the 200-300 seat LCA market, and is not a legitimate basis to refrain from assessing the cumulative effects of all of the subsidies. Although panels enjoy a certain degree of discretion in selecting an appropriate methodology for determining the effects of a subsidy, this discretion is not unbounded, and does not permit a panel to isolate or compartmentalize its analysis so as to mask the contribution of any subsidy to adverse effects. Rather, a proper interpretation of Articles 5 and 6.3 of the SCM Agreement requires panels to assess—quantitatively or qualitatively—the collective effects of all subsidies that impact competition in the market at issue.
70.
The European Union suggests that the following approach is the proper one to take. Initially, a panel should examine the nature of the individual subsidies, in terms of their structure, design, and operation, and aggregate in a group those specific subsidies that have a sufficient nexus to the subsidized product and have a similar structure, design, and operation. Next, a panel should assess, by individual subsidy or group of subsidies, whether and how each subsidy or group of subsidies provides a competitive advantage to the subsidized producer and its products in the market. At this stage of its analysis, as the Appellate Body has stated in previous disputes, a panel has a degree of discretion to structure its approach, and to select the evidence on which to rely.155 Irrespective of how a panel exercises that discretion, ultimately it must assess—quantitatively or qualitatively—whether the collective competitive impact of the different (groups of) subsidies found to have a negative impact on competition in the market causes one or more of the particular forms of adverse effects listed in Article 6.3 of the SCM Agreement.
71.
The European Union relies upon the text of Articles 5 and 6.3, in their context, as well as the object and purpose of the SCM Agreement, in support of its position. The broad reference in Article 5 to "the use of any subsidy"156, coupled with the broad reference in Article 6.3 to a "subsidized product", shows that neither provision distinguishes between different types of subsidies, and suggests that these provisions discipline the collective impact of any and all subsidies benefiting the subsidized product in the market at issue. These provisions make no reference to or distinction between any particular causal mechanisms. Accordingly, in undertaking the causation analysis required by these provisions, a panel must consider collectively the effects of all subsidies that support the same product and negatively impact competition in the market at issue in determining whether they amount to adverse effects within the meaning of Article 6.3. Articles 5 and 6.3 provide no support for an interpretation that the effects of different subsidies cannot be assessed cumulatively simply because those subsidies affect competition through "distinct causal mechanisms".157 The now expired Article 6.1 of the SCM Agreement also provides contextual support for a cumulative assessment of the effects of subsidies in two ways. First, in determining whether subsidies rise to an ad valorem level of subsidization sufficient to trigger the presumption of serious prejudice, Article 6.1(a) and Annex IV mandated that all subsidies be included (except those that are non‑actionable). Second, Article 6.1(b), (c), and (d) indicate that, when the drafters of the SCM Agreement wished to require isolation of the effects of particular types of subsidies, they did so explicitly. Those provisions expressly identified types of subsidies that benefited the subsidized product and affected the market at issue through a particular causal mechanism (subsidies covering operating losses for an industry or enterprise, as well as direct forgiveness of debt) and created a presumption of serious prejudice. By contrast, Article 6.3 makes no distinction between subsidies based on their type or causal mechanism; instead, it focuses on the effects of subsidies.
72.
Moreover, the Panel's interpretation undermines the object and purpose of the SCM Agreement, which requires that its provisions be interpreted so as to "strengthen and improve"158 the actionable subsidy disciplines, rather than undermine them. The Panel's interpretation would enable Members to escape a finding of serious prejudice by providing a series of small subsidies each of which affects the recipient in a slightly different way. Under the Panel's approach, because these small subsidies work along different causal pathways, their effects may not be cumulated. Thus, such subsidies could not be found to cause adverse effects if each, on its own, causes a degree of trade distortion that is insufficient to amount to adverse effects. In reality, however, the respondent Member would, "through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, {cause} adverse effects".159 The Panel's approach, therefore, undermines the object and purpose of the SCM Agreement. In US – Upland Cotton, the Appellate Body highlighted the importance of examining whether the non-price-contingent subsidies "contribute to price suppression"160, which the European Union considers to be fully consistent with an approach whereby an assessment under Articles 5 and 6.3 would require consideration of whether each challenged specific subsidy benefiting a common subsidized product contributes to the same adverse effects claimed.
73.
The European Union recalls its arguments before the Panel that: (i) "the aeronautics R&D subsidies... 'have helped Boeing develop, launch and produce a technologically-advanced 200-300 seat LCA much more quickly than it could have on its own'"161; and (ii) "all of the subsidies have... 'price effects' in that they have enabled Boeing to charge lower prices for its LCA".162 The United States did not address the issue of aggregation, because it argued that the subsidies had neither technology effects nor price effects. Because the European Communities raised claims and presented arguments regarding the adverse effects caused jointly by the B&O tax rate reductions and the aeronautics R&D subsidies in the 200-300 seat LCA market, the Panel was required to assess the effects of these subsidies cumulatively. The European Union highlights, in this regard, that, with respect to the 100‑200 seat and 300-400 seat LCA markets, the Panel found "inescapable"163 its conclusion that the cumulative effects of the FSC/ETI subsidies and the B&O tax rate reductions caused significant price suppression, significant lost sales, and displacement and impedance to the European Communities' interests. These are the same forms of adverse effects that the European Communities claimed the B&O tax rate reductions have caused in the 200-300 seat LCA market.164 Given, therefore, that the evidence that was before the Panel suggests that the B&O tax rate reductions could contribute to the adverse effects caused by the aeronautics R&D subsidies, both of which benefit the 787, the Panel was required to assess the effects of these subsidies cumulatively—even if it found that, "on their own"165, the B&O tax rate reductions were not shown to cause adverse effects in that market.
74.
The European Union considers that the Appellate Body report in EC and certain member States – Large Civil Aircraft supports its claim that the Panel's failure to aggregate the effects of the B&O tax rate reductions with the effects of the aeronautics R&D subsidies in the 200-300 seat LCA market amounts to reversible legal error. In that dispute, the Appellate Body recognized that a panel's discretion to structure its causation analysis is not unlimited and cannot absolve it from having to establish a genuine and substantial relationship of cause and effect. As the United States argued in that appeal, "isolating certain subsidies from a panel's causation analysis 'would permit circumvention of the disciplines of Article 6.3 in the case of smaller measures that individually would not have caused adverse effects, but which collectively would affect competition in a manner inconsistent with Articles 5 and 6.3'."166 The Appellate Body clarified that, when individual subsidies are aggregated, causation may be established for all of those aggregated subsidies, even if some individual subsidies (or groups of subsidies) could not be found to be a genuine and substantial cause of adverse effects if considered separately.
75.
The European Union further notes that, in that dispute, the Appellate Body also held that subsidies may be aggregated in some circumstances, even where those subsidies have important "differences in the{ir} nature and operation", which "may suggest that these measures ha{ve} distinct effects".167 The Appellate Body found that, as long as the discrete subsidies "all have a genuine causal link" with the claimed market impact, they can be considered as "complement{ing} and supplement{ing}" each other.168 The Appellate Body further found that subsidies that were quite distinct from the launch aid/member State financing ("LA/MSF") subsidies in form, design, and operation (equity infusions, runway extensions, and other infrastructure subsidies) should be aggregated with the LA/MSF subsidies. In this case, the B&O tax rate reductions complement and supplement the effects of the aeronautics R&D subsidies, because they support Boeing's ability to achieve a pricing advantage. Thus, according to the European Union, having found that the aeronautics R&D subsidies allow Boeing to suppress Airbus' pricing in the 200-300 seat LCA market, and having also found that the B&O (along with the FSC/ETI) tax subsidies had the capacity to suppress Airbus' pricing in the 100‑200 seat and 300‑400 seat LCA markets, the Panel should have aggregated the B&O tax rate reductions for the 200‑300 seat LCA market with the aeronautics R&D subsidies.

(b) Collective assessment of the tied tax subsidies and the remaining subsidies and their effects

76.
The European Union asserts that the Panel also erred in its interpretation and application of Articles 5 and 6.3 of the SCM Agreement by failing to aggregate the tied tax subsidies with the remaining subsidies. The European Union requests the Appellate Body to reverse the Panel's finding that the remaining subsidies do not, on their own, cause adverse effects, and to find, instead, that the remaining subsidies also cause adverse effects when aggregated with the tied tax subsidies (or with the aeronautics R&D subsidies coupled with the tied tax subsidies) that were found to cause adverse effects. Given the adverse effects finding for the tied tax subsidies alone, a proper cumulative analysis must also result in an adverse effects finding for the remaining subsidies.
77.
Referring to the statement by the panel in EC and certain member States – Large Civil Aircraft, the European Union submits that it is appropriate to aggregate subsidies that complement and supplement each other in circumstances where the subsidies have a "sufficient nexus with the subsidized product... {and} they also have a sufficient nexus with 'the particular effects-related variable{s} under examination'".169 It follows that the Panel in this case should not have segregated its adverse effects analysis so that it could take account of the combined market effect of subsidies that collectively enhance Boeing's cash flow and ability to price down its LCA. Both the remaining subsidies and the tied tax subsidies contribute to price effects and also satisfy the requirements set out by the panel in US – Upland Cotton for an "integrated examination of effects of any subsidies", in that the remaining subsidies (i) have "a sufficient nexus" with the "subsidized product" (that is, Boeing LCA) and (ii) impact the same "effects-related variable" as the tied tax subsidies (that is, price).170 Furthermore, the Appellate Body in the US – Upland Cotton dispute recognized that non‑price‑contingent subsidies could nevertheless contribute to price suppression, and thereby implied that the panel could have aggregated non-price-contingent subsidies with the price-contingent subsidies.171
78.
The European Union considers that the Appellate Body report in EC and certain member States – Large Civil Aircraft further supports its claim that the Panel's failure to aggregate the effects of the tied tax subsidies with the effects of the remaining subsidies constitutes legal error. The Appellate Body's findings in that case show that subsidies of a different nature can be aggregated when they have a genuine causal link with the same overall effect claimed. In this dispute, the Panel found that the remaining subsidies increased the amount of cash benefitting Boeing by $550 million. Instead of finding that subsidies "of this amount"172 did not result in market effects rising to the level of serious prejudice, the Panel should have combined the effects of those subsidies with the effects of the other subsidies causing the same market effects. The effects of these two groups of subsidies complemented and supplemented the "pervasive and consistent pricing advantage"173 enjoyed by Boeing resulting from the effects of the tied tax subsidies, because Boeing had those additional funds at its disposal to use in strategic sales campaigns. Thus, having found that the tied tax subsidies caused, in and of themselves, serious prejudice, the Panel should have continued its analysis and found that the remaining subsidies complement and supplement the pricing effects of those tax subsidies.
79.
The European Union also argues that the Panel erred in not cumulating the effects of the remaining subsidies with the effects of both the aeronautics R&D subsidies and the tied tax subsidies. The Panel was tasked with assessing whether the use of the challenged subsidies cause adverse effects, and erred by limiting its assessment to the question of whether the remaining subsidies, on their own, cause adverse effects. By failing to take the proper analytical steps to cumulate the effects of the remaining subsidies with the effects of the aeronautics R&D subsidies (and the effects of the tied tax subsidies), the Panel failed to comply with the causation requirements under Articles 5 and 6.3 of the SCM Agreement.

5. Article 11 of the DSU

80.
The European Union argues that the Panel acted inconsistently with the principle of due process on two separate, but related, grounds when it decided to exclude all but two of the USDOD RDT&E programmes from its adverse effects analysis. The European Union claims that the Panel's "predominan{ce}"174 approach was articulated for the first time in the Final Report issued by the Panel to the parties; consequently, the parties were not afforded an opportunity to comment on this approach. The European Union argues that the approach the Panel took in the Final Report could not have been anticipated by the parties, given that both parties opposed the idea of separating procurement contracts from assistance instruments for purposes of determining the existence of a subsidy and adverse effects. Along the same lines, the European Union contends that the Interim Report explained that the only reason for excluding all but two USDOD RDT&E programmes was that the Panel did not have sufficient evidence about whether such programmes funded assistance instruments as opposed to procurement contracts. By contrast, the Panel then introduced in the Final Report a different standard, namely, whether the USDOD RDT&E programmes at issue "funded predominantly assistance instruments, as opposed to procurement contracts, or a mixture of assistance instruments and procurement contracts".175
81.
Second, the European Union contends that, although the Panel recognized the insufficiency of evidence to ascertain the effects of assistance instruments alone, the Panel failed to seek from the United States the necessary information, despite the fact that the United States consistently ignored the European Communities' requests to produce information that would have permitted a contract‑by‑contract analysis. To the extent that the Panel chose to apply its "unexpected" "predominan{ce}" approach, the European Union alleges that "it was imperative for the Panel to request the contract information from the United States that the European Union had been seeking to enable it to make the assessment it considered necessary to resolve the dispute".176 However, despite adopting the novel "predominan{ce}" approach, the Panel never directed enquiries to the United States under Article 13 of the DSU, nor did it draw adverse inferences from instances of the United States' non‑cooperation in disclosing relevant contracts.
82.
Consequently, in the European Union's view, the Panel failed to protect the due process rights of the European Communities and therefore acted inconsistently with its obligations under Article 11 of the DSU. In addition, the European Union argues that the consequences of these Panel errors were aggravated by the United States' continuing failure to disclose the RDT&E contracts and details about the RDT&E programme elements that were exclusively in its possession. Similar to the panel's approach in US – Continued Zeroing, the European Union submits that the Panel "required evidence …, but then did not take the necessary steps to elicit from the parties information that might … 'elucidate its understanding of the facts and issues in the dispute before it'."177 In that dispute, the Appellate Body found that the panel had violated Article 11 of the DSU.
83.
While the European Union requests the Appellate Body to reverse the Panel's finding that the USDOD RDT&E programmes—other than the ManTech and DUS&T programmes—do not cause the same effects as the other aeronautics R&D subsidies, the European Union does not request the Appellate Body to complete the analysis.

B. ARGUMENTS OF THE UNITED STATES – APPELLEE

1. Annex V to the SCM Agreement

84.
The United States submits that both the initiation of an Annex V procedure and the designation of a facilitator require a DSB decision by positive consensus. Neither can occur without the DSB reaching a "decision", which is defined as "{t}he action of coming to a determination or resolution with regard to any point or course of action; a resolution or conclusion arrived at".178 Article 2.4 of the DSU and footnote 3 to Article IX:1 of the WTO Agreement establish a general rule requiring positive consensus for DSB decisions unless otherwise expressly specified—such as in Articles 6.1, 16.4, 17.14, 22.6, and 22.7 of the DSU, which "all provide for the DSB to take specified procedural steps 'unless the DSB decides by consensus not to' take that procedural step".179 Articles 4.4 and 7.4, Articles 4.8, 4.9, 7.6, and 7.7, and Articles 4.10 and 7.9 of the SCM Agreement require the same. Given that Annex V prescribes no specific decision-making rule, the general rule of positive consensus must apply. Initiation of a procedure and designation of a DSB representative as facilitator are actions that fall within the ordinary meaning of "decision", and as such they require the consensus of the DSB under Article 2.4 of the DSU and Article IX:1 of the WTO Agreement.
85.
The United States notes that its position is in line with the consistent practice of the DSB, which has in all past cases initiated Annex V procedures and designated facilitators by positive consensus. Furthermore, before subsequently reversing its position in this dispute, the European Communities itself "vigorously advocated the view that initiation of an Annex V process is subject to positive consensus"180 in opposing the United States' request for initiation of an Annex V procedure in EC and certain member States – Large Civil Aircraft. In the context of that dispute, the European Communities expressed to the DSB its view that, "consistent with WTO jurisprudence, an Annex V procedure could not be initiated by only one party to a dispute, but required a meeting of the minds; an actual agreement between the parties".181
86.
The United States adds that there is "no support in the 'overall framework' of the DSU for the distinction the {European Union} seeks to draw between 'decisions' and 'actions' of the DSB, or the different decision-making rules the {European Union} would assign to each".182 The "overall framework" of the DSU calls for the DSB to do a number of different things, but does not divide these functions into "actions" and "decisions". The DSU uses the term "action" in connection with the DSB only three times, in Articles 2.1, 21.7, and 21.8, and in none of these provisions does the use of the term "action" support the existence of the action/decision dichotomy posited by the European Union. Article 2.1, in particular, merely states a special rule identifying which Members may participate in dispute settlement matters under the Plurilateral Trade Agreements, and cannot serve as the type of "framing principle"183 that the European Union contends it does. Moreover, the European Union's argument that the DSB does not take a "decision" in establishing a panel (Article 6.1), adopting panel and Appellate Body reports (Articles 16.4 and 17.14), or authorizing the suspension of concessions (Articles 22.6 and 22.7) "rests on a misperception of the nature of a decision".184 A decision is a particular type of action.185 Whether a panel is established or there is a consensus not to establish a panel, the DSB has taken a decision regarding the establishment of a panel. Furthermore, when the DSB establishes a panel or adopts a report, it declares that it has "agreed to establish a panel" or that it "adopts" the report. This indicates that the DSB is not a "passive spectator"186, but that it considered an action and took a decision with regard to that action. Thus, to the extent that the overall framework of the DSU is relevant to the initiation of an Annex V procedure, it indicates that the DSB operates by positive consensus except where explicit exceptions provide otherwise. The United States stresses that no such express exception applies to the initiation of an Annex V procedure or the designation of a DSB representative to facilitate such procedure.
87.
The United States also emphasizes that, even though the information-gathering procedure contemplated in Annex V is related to a panel's review of claims under Article 6 of the SCM Agreement, Annex V calls for a collaborative procedure independent of the panel proceedings and which operates under different rules. Such procedure is "completely optional"187 in the sense that it may well be that neither party requests it in a given dispute. Only the DSB, and not the panel, has a role in such process. Indeed, since the duration of the process is limited to 60 days, it may well be that the panel will not have been composed for a substantial part of that period. Furthermore, Annex V provides no detailed guidance regarding procedures thereunder, and the DSB representative, whose "sole purpose"188 is to ensure the timely development of the necessary information, has none of the authority of a panel. Accordingly, the United States reasons that there is no basis to transpose procedural rules applicable to panels into the Annex V procedure.
88.
With respect to the ten points raised by the European Union in support of its argument that initiation of an Annex V procedure is a DSB action subject to negative consensus, the United States characterizes the first, fourth, and seventh points as non sequiturs. The fact that there is a relationship between an Annex V procedure and a panel's review of claims under Article 6 of the SCM Agreement says nothing about the procedures applicable to the respective initiation or administration of each. The DSB uses negative consensus for some dispute-related decisions, and positive consensus for others, such as authorizing the Chair of the DSB to draft non-standard terms of reference. Moreover, some steps—such as requesting consultations, becoming a third party to a dispute, or referring a matter to arbitration under Article 22.6 of the DSU—do not require any action by the DSB. This means that it is not safe to assume, simply because a procedure is related to a dispute, that it is subject to negative consensus. It also means that the reference in paragraph 2 of Annex V to Article 7.4 of the SCM Agreement does not import a negative‑consensus decision rule. Instead, this cross‑reference simply identifies establishment of a panel as a precondition for initiation of an Annex V procedure.
89.
The United States also takes issue with the European Union's contentions that the references in Annex V to "under", "cases", and "matters" mean that an Annex V procedure and a panel establishment are not separate. The phrase "under paragraph 4 of Article 7" simply clarifies that Annex V is not available when a panel is established under another provision—such as Article 4.4 of the SCM Agreement—and does not suggest that Article 7.4 governs initiation of an Annex V process or designation of a DSB representative as facilitator. Additionally, since a "matter" is a specific measure and the legal basis of a complaint, an Annex V procedure is not a "matter", but merely "one procedural step that may occur in the process of addressing a matter".189 Just because an Annex V procedure is related to a matter does not mean that the decision-making rules are the same. The United States further contests the European Union's assumption that the initiation of an information-gathering procedure will occur upon establishment of a panel. Paragraph 5 of Annex V sets a 60‑day limit from the date on which the matter has been referred to the DSB for completion of the information-gathering process, without regard to the actual date of initiation. Such a time-limit does not indicate that the rules for establishing a panel (such as the negative consensus rule) apply to initiation of an Annex V procedure.
90.
The United States also rejects the European Union's third and fifth considerations that textual linkages between Annex V and provisions of the SCM Agreement indicate a negative consensus rule for decisions related to Annex V. A Member's "request" can trigger a positive or negative consensus decision under the DSU. This is best demonstrated by Article 6.1 of the DSU, pursuant to which a "request" to establish a panel requires positive consensus at the first DSB meeting at which the request is presented, but then the same request requires negative consensus at the second DSB meeting. Furthermore, although the word "procedure" in paragraph 2 of Annex V is linked to the "rules and procedures" that Article 2.1 and Appendix 2 to the DSU provide for the DSB to administer, this does not imply a negative consensus rule, because the DSB administers many procedures through positive consensus, such as decisions establishing a single panel or modifying procedures for particular disputes.
91.
In the view of the United States, the European Union's second, sixth, eighth, ninth, and tenth considerations all raise the spectre that a positive consensus approach to Annex V procedures would render them "wholly ineffective".190 Recalling that the DSB has used positive consensus for many decisions relating to disputes, including for initiation of Annex V procedures, the United States observes that the European Union's "alarmism"191 is unwarranted.
92.
For the United States, a positive consensus rule comports more with the collaborative nature of initiating an Annex V procedure and designating a representative of the DSB as facilitator. Indeed, the United States cautions that, given the structure of Annex V, a negative consensus rule for the appointment of a facilitator would be "unworkable"192, because Annex V establishes no default procedures except for partial supervision by a DSB representative, who has very limited authority. The United States disagrees with the European Union's argument that the drafters of the SCM Agreement could not have intended to make initiation of an Annex V procedure mandatory and, at the same time, made it possible for a Member to block such initiation. For the United States, the relevant provisions—including Article 2.4 of the DSU—simply reflect a balance in the system, and are but one illustration of circumstances in which the DSB is expected to act, but it must do so by consensus. Decision-making by consensus requires Members to work together to find solutions. While this may be difficult, the rule ensures that the solution reached reflects the collective interests of all Members.
93.
The United States specifically refutes the sixth point of the European Union—namely, that the existence of the general obligation to cooperate that paragraph 1 of Annex V places on all Members confirms that initiation must be subject to negative consensus—because it cannot be the case that the drafters created "an obligation to cooperate, but a right to do nothing".193 Paragraph 1 of Annex V creates a generalized obligation to cooperate in developing evidence that is separate and independent from the procedure contemplated under paragraph 2. The obligation applies even if there is no request under paragraph 2 for an Annex V procedure, and it extends beyond such a procedure because it also covers the provision of information sought by the panel under Article 13 of the DSU, the submission by parties of information in support of their arguments, and any other procedure that develops information during the course of the panel proceeding.
94.
As to the eighth argument of the European Union, the United States highlights that the consequences of non-cooperation set out in paragraphs 6 to 9 of Annex V are in fact an explicit recognition of the possibility that the parties will fail to cooperate, and highlights that such consequences—the use of the best information available or the drawing of adverse inferences—are essentially the same as those relating to non-cooperation in the context of panel proceedings. Therefore, blocking an Annex V procedure does not relieve a Member of its obligation to respond to a panel's request for information or shield the Member from the consequences of failing to do so.
95.
Responding specifically to the European Union's ninth argument, the United States argues that a domestic countervailing duty proceeding is not akin to an Annex V procedure. Like investigating authorities whose requests for information are not satisfactorily answered, a panel may rely on the best information available when a party fails to provide the requested information. Furthermore, and with respect to the European Union's tenth point, a panel's information-gathering capabilities and powers to use the best available information and draw adverse inferences are not affected by the presence or absence of an Annex V procedure.
96.
With respect to the object and purpose of the SCM Agreement194, the United States submits that interpreting the relevant provisions to mean that an Annex V procedure is initiated by positive consensus conforms to the object and purpose of the SCM Agreement by requiring a collaborative approach that balances the needs and sensitivities of the complaining party and the responding party. In contrast, accepting the position of the European Union would allow the complaining party to dictate the procedural rules. This is illustrated by the fact that the European Union goes as far as to argue that, not only does the DSB designate a representative by negative consensus, but the complaining party may also unilaterally choose the candidate for the post.195 Such a result would, in the view of the United States, upset the "delicate balance"196 that the SCM Agreement strikes between the interests of complaining parties and responding parties.
97.
Lastly, the United States urges the Appellate Body to attach no weight to the European Union's reliance on the negotiating history of the SCM Agreement and the original proposal for an information-gathering procedure. The United States disagrees with the European Union's argument that the negotiating history makes "clear" that "the linked Annex V procedure would follow the same procedure"197 as set out in Article 7.4 of the SCM Agreement. Moreover, the United States emphasizes that its proposal during the Uruguay Round negotiations was premised on the lack of "an information-gathering mechanism or a means for assuring the co-operation of the party in possession of information necessary to demonstrate adverse effects"198 in the Tokyo Round Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade199 (the "Tokyo Round Subsidies Code"). The situation is different under the DSU, which, as the Appellate Body has recognized, endows panels with the authority to draw adverse inferences from a Member's refusal to provide information and, thereby, provides a strong incentive for cooperation.200

2. Financial Contribution – Scope of Article 1.1(a)(1) of the SCM Agreement

98.
The United States agrees with the Panel that transactions that are properly characterized as "purchases of services" fall outside the scope of Article 1.1(a)(1) and, consequently, of the SCM Agreement. In the United States' view, this finding is "beyond reproach".201
99.
The United States underscores that a proper interpretation of the SCM Agreement gives meaning to all of its terms and does not insert words and concepts that are not there.202 Moreover, as the Appellate Body has stated, it involves a "holistic exercise"203 of applying relevant interpretative rules to derive the meaning of the terms of a treaty so as to enforce the parties' intentions. The United States argues that the object and purpose of the treaty, which is stated at a "high level of generality"204, cannot be elevated over other considerations. An attempt to read "purchases of services" into the text of Article 1.1(a)(1) "so as to advance 'holistic' goals divined from the object and purpose" would be incompatible with the principles of treaty interpretation.205 Moreover, the United States disagrees that an interpretation that "narrows the meaning of a term"206 necessarily frustrates the object and purpose of the SCM Agreement. Rather, consistent with previous Appellate Body jurisprudence, the object and purpose of the SCM Agreement reflects a "delicate balance"207 that lies at the heart of the Agreement.
100.
For the United States, the European Union's specific criticisms of the Panel's interpretation do not provide a basis for including purchases of services within the scope of the SCM Agreement. First, the Panel engaged in a "careful consideration of all text and context, including how each provision informed the scope of the others"208 in a type of holistic exercise previously endorsed by the Appellate Body. Contrary to the European Union's arguments, the Panel applied all of the relevant rules of treaty interpretation in a manner consistent with the Appellate Body's guidance.
101.
The United States also asserts that the Panel correctly treated the list of categories under the subparagraphs of Article 1.1(a)(1) as "closed"209, and as imparting meaning to each other. Unlike other provisions of the SCM Agreement—including those relating to "benefit" (Articles 1.1(b) and 14) and "export contingent" subsidies (Article 3.1(a)), which set out a non‑exhaustive list of terms that inform the breadth of these terms—the closed list of transactions included in the definition of "financial contribution" in Article 1.1(a)(1) is structured so that a transaction that does not fall within one of the listed categories is not covered by the Agreement. For the United States, there must be precision with respect to which subparagraph the specific transaction falls under, as this has repercussions for other aspects of a subsidy analysis, such as benefit under Article 14, and specificity under Article 2.1.
102.
The United States considers "misplace{d}"210 the European Union's reliance on a statement by the panel in Japan – DRAMs (Korea) that certain transactions could be covered by more than one of the subparagraphs in Article 1.1(a)(1). While the Panel did acknowledge the possibility of overlap, it did not find this to be the case with respect to purchases of "goods". As the European Communities' argument regarding "purchase of services" necessarily implied such an overlap, it "could not stand".211 Therefore, the example of equity infusions provided by the European Union to illustrate that a transaction can fall into two categories is "simply irrelevant"212 to the case of purchases of goods. The United States disagrees in any event that transactions involving equity infusions qualify as both purchases of goods and direct transfers of funds, because it does not accept the European Union's reading of the Appellate Body's findings in US – Softwood Lumber IV to mean that "ownership rights can be considered 'goods'".213 Furthermore, Articles 14(a) and 14(d), which provide two "separate and distinct" guidelines for calculating the amount of subsidy for equity capital and purchases of goods, respectively, "demonstrate{} that the meanings of these two terms are clearly distinct in the context of the SCM Agreement", and that an equity infusion can fall only within a single category.214
103.
The United States supports the Panel's conclusion that categorizing "direct transfers of funds" as encompassing "purchases {of} goods" would render the explicit reference in subparagraph (iii) "redundant and inutile"215, an outcome not permitted by the rules of treaty interpretation. The European Union attempts to avoid the conclusion of inutility by positing that the term "purchases {of} goods" covers transactions that would otherwise fall outside the SCM Agreement, such as where the government promises to exercise preferential treatment in exchange for a private company's provision of goods.216 In the United States' view, this does not provide a basis to ascribe an independent meaning to the term "purchases {of} goods".217 The United States questions whether this would be a "purchase" at all, since the European Union provides no evidence that such transactions occur or that the drafters wished to cover them.
104.
The United States further asserts that the European Union's interpretation ignores the object and purpose of the SCM Agreement, which "reflects a delicate balance between the Members that sought to impose more disciplines on the use of subsidies and those that sought to impose more disciplines on the application of countervailing measures".218 The United States does not agree with the European Union's characterizations of previous Appellate Body statements regarding the object and purpose of the SCM Agreement, because they result in "a one‑sided evaluation of disciplines on subsidies that would disregard or minimize provisions that … 'recogniz{e} … the right of Members to impose such measures under certain conditions'."219
105.
The United States disagrees that the Panel's analysis creates the "loopholes" envisaged by the European Union. Rather, the Panel was aware of the risk that Members would characterize their transactions as "purchases of services" in order to avoid the disciplines under the SCM Agreement, and expressed confidence that this would be detected by WTO panels and investigating authorities.220 The concerns relating to circumvention do not arise here because the focus is only on transactions "properly characterized" as "purchases of services".221 The United States also notes the European Union's argument that the Panel's analysis would allow Members to avoid the SCM Agreement by asking for a service from a goods producer "in exchange for... a transfer of funds, foregoing of government revenue otherwise due, or provision of goods and services".222 The United States is not convinced that these "scenarios"223 present a threat of circumvention.
106.
In the case of the scenario in which the government provides a service in exchange for a "transfer of funds", the United States denies that "circumvention" would occur, because the resulting transaction would either: (i) not be a financial contribution (because it constitutes a "purchase of services"); (ii) be some other type of financial contribution (such as a grant with incidental services); or (iii) be a net transfer of funds to the government, which is not covered by the SCM Agreement.224 Regarding the scenario involving a supply of services in exchange for a government's foregoing of revenue otherwise due, the United States notes that this could be a transaction properly characterized as a "purchase of services", or a financial contribution with an "incidental service", but that such a determination would depend on a detailed consideration of the facts.225 Finally, with respect to the scenario in which a government provides goods and services in exchange for a supply of goods by a producer, the United States refers to the Panel's findings elsewhere in its Report that such transactions constitute "provision", rather than "purchases", of services, making the European Union's concerns about circumvention "{un}realistic".226
107.
Therefore, the United States requests the Appellate Body to uphold the Panel's finding that transactions properly characterized as "purchases of services" are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement.

3. Specificity – Allocation of Patent Rights

108.
The United States notes that the European Union does not dispute the Panel's statement that "the allocation of patent rights is uniform under all... U.S. government departments and agencies, for all enterprises in all sectors".227 According to the United States, that should be the end of the analysis under Article 2.1(a) of the SCM Agreement. Contrary to what the European Union argues, nothing in the SCM Agreement supports the notion that uniform treatment becomes specific when individual government agencies, such as NASA and the USDOD, accord such treatment pursuant to contracts and agreements subject to agency-specific procedural rules.228
109.
The United States also observes that, although the Panel came to its decision before the Appellate Body issued its reports in US – Anti-Dumping and Countervailing Duties (China) and EC and certain member States – Large Civil Aircraft, the Panel's analysis "follows the lines laid out in those reports".229 The Panel properly considered all of the legal instruments at all government levels and conducted a "detailed evaluation"230, examining each instrument individually and considering it as part of a broader "framework".231 It further examined whether the authorities or the legislation imposed limitations on access to the alleged subsidy, and found that they did not. Lastly, in the United States' view, the Panel concluded—albeit without using these precise words—that "evidence under consideration unequivocally indicates … non-specificity by reason of law"232 under Article 2.1(a), rendering further analysis unnecessary.
110.
The United States asserts that the European Union misinterprets Article 2.1 of the SCM Agreement in calling for an analysis based on a subset of the US legislation related to the challenged financial contributions. The "fundamental flaw" in the European Union's approach is its insistence that, under Article 2.1(a), "the only 'granting authority' for purposes of the specificity analysis is the entity that directly conferred the alleged financial contribution to the alleged recipient."233 If multiple authorities participate in the process of granting the subsidy, nothing in the text of Article 2.1(a) prevents a panel from considering all of them to be collectively "the granting authority". The United States asserts that the European Union also errs in failing to recognize that Article 2.1(a) "does not restrict the analysis to the granting authority or the legislation", but rather "allows a consideration of both, as appropriate".234
111.
The United States agrees with the European Union on the ordinary meaning of the term "granting authority"235, but it rejects the European Union's conclusion that "granting authority" means only the governmental entity that executed the document conferring the financial contribution underlying the subsidy. The European Union fails to address the full definition of the word "authority", which may entail "one or more of '{t}hose in power or control' of the alleged subsidy".236 The context provided by Article 1.1(a)(1) of the SCM Agreement—which refers to "government or any public body"—confirms the previous conclusion. Article 2.1 of the SCM Agreement frames the specificity analysis in different terms, because it refers to the "granting authority". This change in terminology "moves the focus of the analysis to the 'authority' responsible for granting the subsidy and away from the mechanical act of making the contribution".237 In response to the European Union's contention that a Member cannot be a granting authority because the SCM Agreement uses the term "Member" in some contexts and "authority" in others, the United States argues that the term "authority" is "conceptually broader"—it can cover one entity or multiple entities at a variety of levels—whereas "Member" "refers exclusively to the Member as a whole".238
112.
The United States rejects the proposition that Article 2.1(a) creates a binary, one-or-the-other choice between "the granting authority" and "the legislation pursuant to which the granting authority operates". Instead, the United States considers that the term "granting authority" calls for "an examination, as appropriate, of the authority, the legislation, or both".239 In addition, the United States rejects the European Union's assertion that the Panel based its conclusion regarding non-specificity on "an overall 'policy' related to intellectual property rights in government contracts".240 The Panel based its conclusion on legal requirements and nothing in its reasoning suggests that a WTO Member could rely, as the European Union fears, on a general policy "to defeat specificity for differential treatment among sectors".241
113.
With respect to the European Union's arguments regarding NASA, the United States notes that, if the European Union means to suggest that "the Space Act and its implementing regulations are the only legislation pursuant to which NASA operates, it is wrong."242 Instead, NASA operates pursuant to additional measures—the Patent and Trademark Law Amendments Act of 1980243 (the "Bayh-Dole Act"), the 1983 Presidential Memorandum244, and the 1987 Executive Order245—and these instruments "form part of the 'legislation' that can indicate specificity or non‑specificity for purposes of Article 2.1(a)".246 The European Union identifies nothing in the SCM Agreement "that precludes consideration of the full spectrum of measures affecting an authority's grant of a subsidy".247 The European Union erroneously focuses on the "granting authority" as opposed to the subsidy and limitations on access to it. The United States notes that the NASA contracts and waiver instruments do not "limit access"248 to the alleged subsidy to Boeing or the aerospace industry. Other enterprises in other industries can have access to the same rights through contracts with other agencies. The United States further submits that "{t}he mere fact that the {European Communities} addressed two agencies {did} not preclude the Panel from addressing the availability of identical treatment throughout the U.S. government."249
114.
With respect to the USDOD, the United States asserts that the European Union's "attempts to paint the allocation of patent rights … as specific are even more invalid than its arguments regarding NASA, because {US}DOD does not even have its own laws and regulations in this area."250 The USDOD follows the general regulations applicable to all agencies under United States Code of Federal Regulations, Title 48, sections 27,300-27.306.251 The USDOD's role in entering into contracts "does not mean that it is the sole granting authority, or that it limits access to the alleged subsidy … from other agencies in other sectors".252 Nor does it mean that "the legislation pursuant to which the patent rights allocation occurs is {}specific".253 The USDOD is, like all agencies, "required to allow its contractors to 'retain' title to inventions"254, and it may only do otherwise "in exceptional circumstances".255 The exception, however, does not change the analysis under Article 2.1(a), because "all agencies have the same authority".256 The European Union's arguments "provide no support for considering specificity in isolation for each agency"257, and hence provide no basis for the Appellate Body to reverse the Panel's findings on specificity.
115.
At the oral hearing, the United States rejected the European Union's argument that the Panel erred in not addressing its assertions of de facto specificity under Article 2.1(c) of the SCM Agreement. In the United States' view, there was no relevant argument for the Panel to address. Article 2.1(c) frames the specificity analysis in terms of whether there was "the granting of disproportionately large amounts of subsidy to certain enterprises".258 Accordingly, disproportionality depends on the subsidy, and not on particular granting authorities. The European Union's assertions covered only NASA and USDOD contracts, which did not provide any information with regard to the subsidy as granted by other entities, and hence did not contain any relevant information for purposes of the assessment of disproportionality.

4. Adverse Effects

116.
The United States contends that the European Union's two grounds of appeal relating to the Panel's decision not to aggregate the effects of certain groups of subsidies "lack merit".259 The European Union's "extremely broad interpretation"260 of Articles 5 and 6.3 of the SCM Agreement, which amounts to requiring cumulative assessment in all cases, is inconsistent with the text of these provisions, as well as with the Appellate Body's previous interpretation of these provisions.

(a) Collective assessment of the aeronautics R&D subsidies and the B&O tax rate reductions and their effects

117.
The United States submits that the Panel properly assessed the effects of the aeronautics R&D subsidies separately from those of the B&O tax rate reductions. The Panel's approach is permissible under Articles 5 and 6.3 of the SCM Agreement and consistent with the Appellate Body's interpretation of these provisions, which affirms that panels enjoy "a certain degree of discretion in selecting an appropriate methodology" for determining adverse effects, and that the "appropriateness of a particular method may have to be determined on a case-specific basis".261 The United States also points out that, although the European Union repeatedly relies upon the report of the panel in US – Upland Cotton, that panel declined to aggregate non-price-contingent subsidies with price‑contingent subsidies because the former were "of a different nature, and thus effect".262
118.
The United States considers that, in this dispute, given the argumentation and evidence before it concerning the fundamentally different natures of the aeronautics R&D subsidies and the B&O tax rate reductions, the Panel selected an appropriate methodology based on "the nature, design, and operation of the subsidies at issue, the alleged market phenomena, and the extent to which the subsidies are provided in relation to a particular product or products".263 The Panel structured its adverse effects analysis in the light of the European Communities' allegations about the nature of the various subsidies and their effects on Boeing's commercial behaviour. Before the Panel, the European Communities drew a "categorical distinction"264 between subsidies alleged to reduce Boeing's marginal unit costs and all other subsidies at issue, and never alleged that the B&O tax rate reductions had any "technology" or other effect on Boeing's ability to launch the 787 in 2004. The Panel properly assessed the effects of these two groups of subsidies separately, and properly considered that "it is clear that the two groups of subsidies operate through entirely distinct causal mechanisms".265
119.
The United States adds that the Panel's approach accords with the views of the Appellate Body in EC and certain member States – Large Civil Aircraft. In that case, the Appellate Body identified two methodologies that seek to account for the combined effects of multiple subsidies: (i) an "aggregate" assessment, in which the effects of multiple subsidies are assessed collectively and simultaneously; and (ii) a "complementary" assessment, in which the effects of one group of very similar subsidies are analyzed first and then, if that first group of subsidies has a "genuine and substantial" causal relationship with the alleged market phenomena, discerning whether a second group of subsidies has a "genuine causal connection" with the same market phenomena, such that the second group "complement{s} or supplement{s}" the first.266 The Appellate Body endorsed the panel's application of the latter methodology, while stressing the need to establish a "genuine causal connection" for each subsidy.267 The United States understands the Appellate Body as having considered that both methodologies for assessing the effects of multiple subsidies should focus on discerning whether the various subsidies operate through the same causal mechanism to cause adverse effects, and recognized the importance of ensuring that subsidies with little or no causal relationship are not found to cause adverse effects simply because they are grouped together with subsidies that do have a genuine and substantial causal connection with the alleged effects. In the case at hand, the Panel aggregated all subsidies alleged to operate through the causal mechanism of enhancing Boeing's ability to launch the 787, namely, the aeronautics R&D subsidies. Since the Panel did not find that the aeronautics R&D subsidies have the "price effects" of causing Boeing to reduce the sales price of the 787, and since the B&O tax rate reductions, by their nature, design, and operation, did not, and were not, alleged to have affected Boeing's launch of the 787, the United States submits that the Panel properly did not include them in its analysis of the effects of the aeronautics R&D subsidies.
120.
The United States argues that there is no support for the "extremely broad interpretation" of Articles 5 and 6.3 of the SCM Agreement proposed by the European Union, which amounts to an argument that "these provisions require a cumulative assessment in all cases".268 Such a rule is not supported by the text of Articles 5 and 6.3 and is inconsistent with the Appellate Body's interpretation of these provisions in prior cases. The United States points out that the reference in Article 5 to "any subsidy" and the references in each of the subparagraphs of Article 6.3 to "the effect of the subsidy" are in the singular form. This reflects the requirement that a "genuine and substantial relationship of cause and effect" or a "genuine causal connection" must be established between any particular subsidy found to exist and any adverse effect found to exist269, rather than the European Union's suggestion that "these provisions discipline the collective impact of any and all subsidies benefiting the subsidised product in the market at issue".270 Although it may be true that "{t}he text of {Articles 5 and 6.3 of the SCM Agreement} does not even refer to any 'mechanism' or manner in which subsidies cause adverse effects"271, it is equally true that the text of these provisions does not refer to subsidies that complement and supplement the "product effect" of other subsidies. Nevertheless, in EC and certain member States – Large Civil Aircraft, the Appellate Body found that it was permissible for the panel to examine whether multiple subsidies complement and supplement a particular "product effect" in its analysis of adverse effects.272 The United States recalls, in this regard, that "Article 6.3(c) requires the establishment of a causal link between the subsidies and the particular market situations being claimed under that provision"273, but the precise methodology to be used to establish such a causal link is not specified in the SCM Agreement.
121.
The United States adds that the European Union's proposed interpretation is at odds with the Appellate Body's finding in EC and certain member States – Large Civil Aircraft, and would undermine the "methodological discretion"274 that panels enjoy in their analysis of adverse effects and overlook the case-specific nature of the determination as to whether a cumulative assessment is appropriate. Such a determination "depend{s} on a number of factors and factual circumstances such as the nature, design, and operation of the subsidies at issue, the alleged market phenomena, and the extent to which the subsidies are provided in relation to a particular product or products".275 The United States underlines in this regard that, in EC and certain member States – Large Civil Aircraft, the Appellate Body found that the panel "was required to find more than simply that two or more subsidies 'support{ed} the same subsidised product and negatively impact{ed} competition in the market at issue'".276 The United States understands the Appellate Body as having found that the panel was required to establish that the non-LA/MSF subsidies had a "genuine causal link" with the same causal mechanism through which the LA/MSF operated (Airbus' ability to launch its LCA models) so as to cause the alleged adverse effects in a way similar to the LA/MSF subsidies.277 For all of these reasons, the United States submits that the Appellate Body should reject the European Union's "one‑size‑fits‑all analytical approach"278 whereby aggregation or cumulation is required in all cases.

(b) Collective assessment of the tied tax subsidies and the remaining subsidies and their effects

122.
The United States argues that the Panel did not err in declining to aggregate the remaining subsidies and the tied tax subsidies in its analysis of adverse effects. Accordingly, the Appellate Body should reject the European Union's request to reverse the Panel's finding that the remaining subsidies do not cause adverse effects, as well as its further request that the Appellate Body find that, when aggregated with the tied tax subsidies (or the aeronautics R&D subsidies), the remaining subsidies also cause adverse effects. The United States observes that, implicit in this request to complete the analysis is a request that the Appellate Body find that the remaining subsidies have led Boeing to offer particular price reductions for particular subsidized products, yet the European Union does not identify any factual findings or undisputed facts that would support such a finding. Nor does the European Union's Notice of Appeal contain a request that the Appellate Body complete the analysis with respect to this Panel finding.
123.
In the view of the United States, the European Union grounds its appeal on two flawed arguments. The first incorrectly relies on the panel reports in US – Upland Cotton and EC and certain member States – Large Civil Aircraft, and the second incorporates by reference the flawed interpretation of Articles 5 and 6.3 of the SCM Agreement as requiring the collective assessment of "any and all subsidies benefiting the subsidised product in the market at issue".279 In response to the latter of these arguments, the United States relies upon its response, summarized above, to the European Union's proposed interpretation of these provisions in the context of its appeal of the Panel's decision not to aggregate the effects of the aeronautics R&D subsidies with the effects of the B&O subsidies in the 200-300 seat LCA market.
124.
The United States observes that the European Union cites to the panel in US – Upland Cotton, which found that an "integrated examination of effects of any subsidies" was permitted in circumstances where subsidies had "a sufficient nexus"' with (i) "the subsidized product" and (ii) "the particular effects-related variable under examination"280, and asserts that "{t}he Remaining Subsidies in this dispute fulfil these requirements".281 The United States characterizes such an assertion as "incorrect"282 for two main reasons. First, no sufficient nexus between the remaining subsidies and the subsidized products has been established. Based on the arguments of the European Communities, the Panel identified three separate groups of subsidized products. The Panel found that the remaining subsidies, "unlike the {tied} tax subsidies … are not directly related to Boeing's production or sale of LCA"283, and the European Union itself concedes that the remaining subsidies are not tied to the production of Boeing LCA. The mere fact that the remaining subsidies were received by Boeing's LCA division says very little about the existence of any nexus between the subsidies and any of the three groups of subsidized products and, as the United States argued before the Panel, "the ways in which Boeing supposedly used the alleged subsidies is critical to its causation arguments"; "{y}et that 'evidence' is essentially non-existent".284 Furthermore, the Panel never agreed with the European Communities' contention that the remaining subsidies confer the equivalent of additional cash flow. Second, the remaining subsidies do not impact the same "effects-related variable" as the tied tax subsidies—namely, price. The Panel rejected both bases underpinning the European Communities' causation theory for the price effects of the remaining subsidies and other non-recurring subsidies—that is, (i) the Cabral price effects model285 and (ii) the European Communities' arguments that Boeing would not have been economically viable without the subsidies.286 The United States points out that the Panel did, however, correctly take into account its findings on the nature and magnitude of the remaining subsidies in assessing their effects and in reaching the conclusion that the evidence was simply insufficient to support the allegation that the remaining subsidies have an impact on the price of any subsidized product.
125.
The United States further rejects the European Union's attempt to rely upon a statement by the panel in EC and certain member States – Large Civil Aircraft as support for the proposition that "a panel must not segregate its adverse effects analysis so that it cannot take account of the combined market effect of subsidies that collectively enhance Boeing's cash flow and its ability to price down LCA."287 The United States stresses that the Panel did not find that the remaining subsidies or the tied tax subsidies "enhance Boeing's cash flow", much less that they do so "collectively", and that the Panel rejected all of the European Communities' arguments that the remaining subsidies "enhance" Boeing's "ability to price down LCA".288 This contrasts sharply with the situation in EC and certain member States – Large Civil Aircraft where the Appellate Body upheld that panel's findings that the non‑LA/MSF subsidies complemented and supplemented the effects of the LA/MSF subsidies. The circumstances of this dispute are, in fact, more comparable to those where the Appellate Body reversed the EC and certain member States – Large Civil Aircraft panel because "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 {research and technological development ("R&TD")} subsidies 'complemented and supplemented' the 'product effect' of LA/MSF in enabling Airbus to launch particular models of LCA."289 Similarly, here, the European Communities' general allegation that the remaining subsidies "constitute the functional equivalent of additional cash flow available to Boeing's LCA division"290—which the Panel did not accept—could not have provided a sufficient basis to determine that those subsidies complement and supplement the effect of the tied tax subsidies in enabling Boeing to reduce the price of each aircraft it manufactures and sells. Thus, submits the United States, the approach taken by the Appellate Body in EC and certain member States – Large Civil Aircraft confirms that the Panel in this case was correct to decline to aggregate the tied tax subsidies and the remaining subsidies.

5. Article 11 of the DSU

126.
The United States further contends that the Panel acted consistently with its obligations under Article 11 of the DSU when it found that it was unable to determine whether certain USDOD RDT&E subsidies cause the alleged adverse effects.
127.
The United States submits that the European Union's allegation that the Panel should have afforded it an opportunity to respond to the Panel's approach or to seek necessary information from the United States is without merit. As an initial matter, parties are not entitled to make comments on the panel's revisions to its interim report because, otherwise, "the interim review stage {would turn} into a potentially indefinite cycle of comments and changes".291 In any event, the United States maintains that, in this case, the European Communities had all the opportunities it needed to make its prima facie case, since the Panel afforded the parties the opportunity to comment on the Interim Report, and addressed such comments in the Final Report, in accordance with Article 15.3 of the DSU.
128.
Moreover, the United States contends that the Panel's approach was not "unexpected"292 or "surprising"293, because the European Communities had "clear notice"294 that the USDOD RDT&E programmes funded different categories of contracting instruments that could be treated differently under Article 1 of the SCM Agreement. Several of the Panel's questions to the parties show the Panel's concern over the different legal implications of the divergences among the categories of legal instruments underlying the alleged subsidies. Thus, the Panel conducted an objective assessment of the arguments and evidence submitted by the parties and, having found that assistance instruments, but not procurement contracts, were "specific" subsidies, the Panel correctly concluded that it could only make adverse effects findings on those USDOD RDT&E programmes for which it had discernible evidence of the effects of the assistance instruments—namely, the ManTech and DUS&T programmes. The European Union misunderstands the Panel's analysis in arguing that the Panel limited its findings to two USDOD RDT&E programmes. Rather, the Panel made it clear that its analysis of adverse effects was in respect of all the RDT&E programmes, but that the European Communities failed to adduce arguments or evidence with respect to the effects of the subsidies under all but two of the USDOD RDT&E programmes at issue.
129.
The United States asserts that the Panel was under no obligation under Article 13 of the DSU "to develop information on behalf of the complaining party".295 In addition, the United States did not fail to cooperate with the information-gathering process, because it complied with the relevant decisions and rulings by the DSB under Annex V to the SCM Agreement, and discussed at great length throughout the Panel proceedings individual procurement contracts and assistance instruments. Furthermore, the Panel did ask numerous questions about the differences between the legal instruments funded pursuant to the USDOD RDT&E programmes at issue. The European Union, again, misunderstands the Panel's adverse effects finding when faulting the Panel for not requesting specific contracts from the United States. As the United States sees it, the Panel did not need "more contracts" but, rather, more evidence from the European Communities relating to the effects of the assistance instruments that the United States had placed on the record "years earlier".296

C. CLAIMS OF ERROR BY THE UNITED STATES – OTHER APPELLANT

1. NASA Procurement Contracts and USDOD Assistance Instruments

(a) Financial contribution – Application of the "purchase of services" test

(i) NASA

130.
The United States requests the Appellate Body to reverse the Panel's application of its "purchase of services" test to the procurement contracts entered into between NASA and Boeing for aeronautics R&D and the Panel's ultimate finding that the transactions are not "purchases of services". The United States' appeal is twofold. First, the United States asserts that the Panel erred in the application of its "purchase of services" test to the facts of the case. Second, the United States argues that, in its consideration of the evidence, the Panel failed to make an "objective assessment of the matter" under Article 11 of the DSU. In the event of reversal of the Panel's finding on one or both of these grounds, the United States does not seek completion of the analysis given the complexity and disputed nature of the facts on the Panel record.
131.
The United States agrees with the test laid down by the Panel for identifying a transaction involving a government's purchase of services. The United States does not dispute that, in order to determine whether a transaction involves a purchase of services, it must be determined whether the object of the transaction was "principally for the benefit and use"297 of the private entity or of the government (or unrelated third parties). Although the United States disagrees with the Panel's use of "an inapposite definition for the term 'service'"298, it does not consider that the use of such a definition affected the Panel's overall conclusion. Nonetheless, in order "to avoid future confusion"299, the United States requests the Appellate Body to clarify the Panel's reasoning by using a more appropriate definition of the word "service".
132.
The United States highlights that the Panel's test "necessitates comparative analysis", since "{r}eaching a conclusion as to whether the government has paid for services 'principally' for the use and benefit of the recipient, as opposed to the use and benefit to the government (or unrelated third parties) requires a comparison of how each party to the transaction could actually use or benefit from the research."300
133.
Absent consideration of what both parties to the research transactions received, it is impossible to reach a reasoned conclusion as to whether the benefit and use of the research is principally for one side or the other. According to the United States, the Panel looked exclusively at the benefit and use of NASA's research to Boeing, without addressing the benefit and use to the government or third parties unrelated to Boeing. However, this "one‑sided"301 approach failed to follow the legal test that the Panel correctly found to be necessary and, accordingly, failed to establish a "financial contribution" for purposes of Article 1.1(a)(1) of the SCM Agreement, the treaty text that the Panel sought to apply.
134.
According to the United States, the NASA programmes and contracts before the Panel had the objective of expanding foundational aeronautics knowledge for the broader scientific community in the United States and other countries, and not only for Boeing. However, the Panel erred by focusing narrowly on two of NASA's statutory objectives, while ignoring the fact that a significant portion of NASA's aeronautics research went to objectives of "undeniable government use".302 Second, even though the Panel noted that almost all of the transactions between NASA and Boeing took the form of procurement contracts—as opposed to assistance instruments—it nevertheless concluded that this did not "shed very much light on the nature of the transactions".303 Third, the Panel did not discuss the evidence on record showing that NASA and unrelated third parties benefited from the aeronautics R&D conducted by Boeing. Fourth, the Panel likewise failed to engage in a comparative analysis of the benefit and use of the resulting intellectual property rights to the parties on either side of the transactions. Lastly, when addressing whether the transactions at issue "involve the typical elements of a purchase of services"304, the Panel erred by focusing only on whether the contracts provided for a fee, while never addressing "other typical elements of a purchase, such as the existence of a value‑for‑value exchange".305
135.
The United States further asserts that the Panel's finding that the access provided to Boeing to NASA facilities, equipment, and employees under the R&D contracts was a financial contribution must fail along with its finding regarding the contracts themselves. The Panel provided no explanation for this finding. The United States submits, moreover, that recognizing that the NASA R&D contracts at issue were purchases of services leads to the conclusion that any access to NASA facilities, equipment, and employees was "incidental"306 to that purchase.
136.
In addition to alleging an error of application, the United States asserts that the Panel failed to make an objective assessment of the matter under Article 11 of the DSU in its evaluation of the "benefit and use" of the research under the contracts at issue. The United States claims that the Panel erred, first, by failing to consider evidence regarding NASA's objectives in its assessment of the "benefit and use" to Boeing and the government and unrelated third parties307; and, second, by failing to consider other objective evidence of the usefulness of the aeronautics R&D programmes to the government and unrelated third parties.308
137.
The United States recalls the Panel's emphasis on two of the nine Space Act's stated objectives, namely, the "preservation of the role of the United States as a leader in aeronautical and space science and technology" and the "preservation of the United States preeminent position in aeronautics and space through research and technology development related to associated manufacturing processes".309 The United States observes, however, that there are other objectives of the Space Act to which the Panel did not give adequate consideration—such as "{t}he expansion of human knowledge of the Earth and of phenomena in the atmosphere and space"310—which are critical to understanding the use and benefit for the government and the broader community. In the view of the United States, the Panel gave "inadequate consideration" to the objective "{t}he improvement of the usefulness, performance, speed, safety, and efficiency of aeronautical and space vehicles".311 The United States explains that NASA's activities in this area—including research undertaken by Boeing—are for the use and benefit of the government, because they improve air travel safety, make air traffic management more efficient, and discover ways to reduce the environmental impact of air travel. As several official statements demonstrate, "NASA did not see these advances as specific to Boeing".312
138.
Moreover, the United States contends, "{t}he evidence is not limited to official expressions" of NASA's objectives, but rather there is also evidence of the "usefulness of NASA research to the broader scientific community in the United States and across the world".313 The United States notes that NASA scientists present their aeronautics research at conferences open to the worldwide aerospace community—including Airbus employees—and also publish in scholarly journals. In addition, NASA requires contractors to submit periodic reports on the progress of their work, which are also publicly available. This evidence shows how private entities' work under NASA research contracts advances the Space Act's objective of "{t}he expansion of human knowledge of the Earth and of phenomena in the atmosphere and space".314
139.
The United States submits that, by omitting essentially all of this evidence, and discussing only evidence supporting the European Communities' allegation that NASA aeronautics R&D programmes existed to serve Boeing, the Panel failed to make an objective assessment of the facts under Article 11 of the DSU. The United States therefore requests the Appellate Body to reverse the Panel's conclusion that NASA's R&D contracts with Boeing constitute a "direct transfer of funds" under Article 1.1(a)(1)(i) of the SCM Agreement.
140.
At the oral hearing, the United States emphasized that the Panel's test for determining whether a measure could be properly characterized as a "purchase of services" is not an issue before the Appellate Body, since neither of the participants has challenged the Panel's test on appeal. In the United States' view, because the participants have accepted the appropriateness of the "principally for the benefit and use test" applied by the Panel, the Appellate Body has not had the benefit of a vigorous presentation of differing points of view and arguments for and against the test.
141.
Also at the oral hearing, the United States emphasized that it is not requesting the Appellate Body to make a finding as to the consistency of the "principally for the benefit and use test" with the SCM Agreement. However, in the event the Appellate Body were to reverse the Panel's "principally for the benefit and use" test, the United States noted that the Panel's finding that the NASA procurement contracts with Boeing are financial contributions would necessarily fail, as this finding would then have been based on an invalid test. The United States added that, since many of the Panel's findings were based on that test, it is difficult to envisage how the Appellate Body could complete the Panel's analysis based on those same findings while using a different legal test.

(ii) USDOD

142.
The United States requests the Appellate Body to reverse the Panel's findings that the assistance instruments between the USDOD and Boeing for aeronautics R&D are not properly characterized as "purchases of services" and its consequential finding that the payments and access to USDOD facilities provided to Boeing thereunder constitute "financial contributions" within the meaning of Article 1.1(a)(1) of the SCM Agreement.
143.
First, the United States asserts that the Panel's failure to consider the descriptions of the work performed under the assistance instruments constituted a significant error, given that the Panel itself stated that the nature of the work Boeing was required to perform was "central to understanding the core term of the transaction".315 The United States submits that, although the Panel found some "benefit and use" to the government from its analysis of the cursory descriptions of the RDT&E programme element numbers, it would have found a "significant benefit and use to the government"316 had it reviewed the statements of work. The United States recalls that the parties provided the Panel with the work descriptions and summaries of five cooperative agreements, six technology investment agreements ("TIAs"), and two other transaction agreements ("OTAs").317
144.
The United States argues that these descriptions of the work to be performed, and in most cases "even the titles alone"318, illustrate that the research has military applications that clearly constitute a significant benefit and use to the government. In this regard, the United States points to the statement of work of some TIAs, and notes, for instance, that structural health monitoring is important for spotting structural damage before it impairs performance, which is an obvious advantage for operators of military aircraft. Likewise, tanks used in missiles and improved materials for turbine engines are similarly useful to the military, whereas precision image registration has military and intelligence applications.319 The United States asserts that, when assessing whether the research was principally for the benefit and use of the government or the contractor, the Panel erred in not considering the "most compelling evidence", that is, the cooperative agreements, TIAs, and OTAs, which contain "the most precise and, therefore, most significant indication of the nature of the research".320
145.
In addition, the United States claims that the Panel failed to take account of the limiting effect of the International Traffic in Arms Regulations (the "ITAR") on Boeing's ability to benefit from and use the results of the USDOD R&D. While the Panel acknowledged that the ITAR restrict Boeing's use of certain USDOD R&D-created technology on LCA and that Boeing "complies with ITAR in general and took steps to ensure that the 787 will be 'ITAR free'"321, the Panel rejected the proposition that the ITAR make it "effectively impossible"322 for Boeing to use the R&D results. The United States argues that the Panel failed to progress beyond mere observations and actually consider the effect of ITAR restrictions. Had it done so, the Panel would have realized that ITAR-controlled LCA are "commercially useless for Boeing"323 for the following reasons: restrictions on each LCA component are actively enforced; exceptions to the restrictions are rare; the ITAR limit the countries that an ITAR-controlled LCA may fly to; and each component that is exported requires detailed review by the US State Department before an export licence is granted. Furthermore, the United States refers to arguments that it made before the Panel that show that Boeing maintains "a rigorous and comprehensive set of internal procedures"324 to ensure ITAR components are not included in its products, including the Boeing 787. Moreover, the level of benefit and use to Boeing from the USDOD R&D assistance instruments is decreased when these ITAR restrictions are considered along with other findings of the Panel—namely, that the USDOD R&D was aimed at designing advanced defence systems or reducing their costs; most agreements involved 50‑50 cost sharing—and the European Communities' concession that 44% of payments under the 23 USDOD RDT&E programmes325, without even considering ITAR restrictions, were directed at military objectives. The United States argues that the Panel's failure to apply its findings regarding the ITAR to its weighing of the civil and military utility of the USDOD research meant that it did not conduct the comparison needed for its "principally for the benefit and use" test.
146.
The Panel's second error, in the United States' view, relates to the Panel's application of the "principally for the benefit and use" test to the five categories of evidence that the Panel said it would consider.326 As regards the first two categories—the Panel's analysis of the relevant US legislation and the types of instruments entered into between the USDOD and Boeing—the United States contends that the formal regulatory categorization of the assistance instruments does not support a legal conclusion that the research at issue was principally for the use and benefit of Boeing, because, while cooperative agreements, TIAs, and OTAs may all fall in the category of "assistance", this does not mean that they require Boeing to perform research that is principally for the benefit and use of the company.327 As for the Panel's evaluation of the "demonstrable use"328 of the R&D performed under the programmes to the USDOD, the United States asserts that the Panel's own findings support the conclusion that the USDOD was the principal beneficiary or user of the research performed by Boeing. With respect to the allocation of intellectual property rights, the United States argues that this did not involve the government paying a private party and getting nothing in return; rather, the assignment of data rights is part of what the private party gets in exchange for contributing to a research project of interest to both parties. Although the Panel seemed to have reached the same conclusion, the United States fails to see how the Panel took this into account in its overall analysis of the assistance instruments. Lastly, in its analysis of the "typical elements" of a purchase of services, the Panel took "too narrow a view", considering only the profit to the seller and failing to address other typical elements, such as the exchange of value for value.329
147.
In sum, the United States argues that the Panel did not explain "how it weighed the five factors it considered against each other".330 Moreover, the Panel's analysis of two of the factors that it did consider—namely, the "demonstrable use" for the R&D and the allocation of intellectual property rights—actually demonstrates that the R&D was for the benefit and use of the government.331 The United States does not consider that the Panel's consideration of the other three factors supports its conclusion that the assistance instruments were not purchases of services, and therefore requests the Appellate Body to reverse the Panel's conclusion under Article 1.1(a)(1)(i) and (iii) of the SCMAgreement.
148.
As it did with respect to the NASA procurement contracts, the United States emphasized at the oral hearing that neither party has appealed the Panel's "principally for the benefit and use" test and, consequently, that such test is outside the scope of appellate review. Nevertheless, in the event the Appellate Body were to reverse the Panel's test, the United States noted that the Panel's finding that the USDOD assistance instruments are financial contributions would necessarily fail, as it would then have been based on an invalid test and it would be difficult for the Appellate Body to complete the analysis based on the same finding while using a different legal test.

(b) Benefit

(i) NASA

149.
The United States appeals the Panel's finding that the financial contributions provided to Boeing under the NASA aeronautics R&D procurement contracts "confer a benefit" within the meaning of Article 1.1(b) of the SCM Agreement. The United States submits that the Panel's finding that research under the NASA R&D contracts is "principally for the benefit and use of Boeing" was the sole basis for the finding of benefit.332 In the United States' view, since the Panel's conclusion that the research was principally for the benefit and use of Boeing is erroneous, the finding of existence of a benefit is equally erroneous.
150.
The United States recalls that the Panel reached its conclusion under Article 1.1(b) in three steps. First, the Panel noted that the "core 'term' upon which the financial contributions are provided" is "that Boeing use the payments and access to facilities, equipment and employees that it receives from NASA for the purpose of conducting aeronautics R&D work that is principally for Boeing's own benefit and use".333 Second, the Panel stated that the "relevant market benchmark would be the terms of a commercial transaction in which one entity pays another entity to conduct R&D".334 Third, the Panel concluded that "no commercial entity, i.e. no private entity acting pursuant to commercial considerations, would provide payments (and access to its facilities and personnel) to another commercial entity on the condition that the other entity perform R&D activities principally for the benefit and use of that other entity".335
151.
The United States alleges that the third conclusion—namely, that no private entity would provide payments and other support under those terms—has no support, other than the Panel's erroneous finding that the research was principally for the benefit and use of Boeing, and therefore cannot establish the existence of a benefit for purposes of Article 1.1(b). In the light of this, the United States requests the Appellate Body to reverse the Panel's finding that the financial contributions found by the Panel conferred a benefit on Boeing.
152.
In addition, the United States submits that the Panel erred under Article 1.1(b) when it estimated the value of any benefit conferred on Boeing under the NASA R&D contracts and agreements. The Panel erred because it based its valuation of the total benefit conferred by NASA "on a combination of transactions covering not only 'LCA-related research' challenged by the {European Communities}, but also other transactions that the {European Communities} did not challenge".336
153.
The United States recalls that the European Communities explicitly excluded from its challenge any research conducted by Boeing for NASA on space, aircraft engines, hypersonic flight, air traffic management, and other topics unrelated to Boeing's development and production of LCA.337 The United States further recalls that, when NASA set out to determine the value of the research contracts covered by the European Communities' claims, "it first segregated all expenditures under contracts between Boeing and the four NASA aeronautics research centers, which came to $1.05 billion" and then "excluded $280 million in expenditures for research that the {European Communities} had not challenged, resulting in a total value of $775 million between 1989 and 2006".338 However, when calculating the value of the NASA research contracts, the Panel "stopped with the $1.05 billion figure" and erred by failing to deduct NASA's payments to Boeing for research unrelated to the European Communities' claims, "or even address the evidence that the $1.05 billion included such research".339 The United States characterizes this omission as an "error" inconsistent with Article 1.1(b) of the SCM Agreement because "it treats transactions that were not part of the financial contribution under Article 1.1(a) as conferring a benefit".340
154.
The United States relies on the Appellate Body's reasoning in Canada – Aircraft341 as support for its assertion that a benefit for purposes of Article 1.1(b) can be conferred only by a financial contribution identified under Article 1.1(a). Thus, the evaluation of the benefit "is limited to what the government conferred through the financial contribution", and "government actions that are not part of the relevant financial contribution are not part of the benefit".342
155.
The United States adds that the Panel estimated the value of the access to facilities, equipment, and employees provided by NASA to Boeing based on the ratio of the payments under the challenged R&D contracts to total NASA payments to all contractors. Consequently, the United States submits that any error in calculating the total value of the payments under contracts would affect the estimated value of access to facilities, equipment, and employees.
156.
Therefore, if the Appellate Body were to uphold the Panel's financial contribution finding, the United States requests the Appellate Body to modify the Panel's finding concerning the value of the benefit to Boeing resulting from the NASA aeronautics R&D programmes by deducting payments that are not part of the financial contribution challenged by the European Communities, and adjusting, accordingly, the associated value of the access to NASA facilities, equipment, and employees provided to Boeing.
157.
At the oral hearing, the United States rejected the European Union's argument that the United States' appeal "lacks legal foundation"343 because its Notice of Other Appeal did not explicitly reference the value of the benefit as an issue on appeal. In the United States' view, the amount of the benefit derives from the same process for identifying the existence of the benefit, and the United States clearly referenced the issue of whether the financial contributions in question conferred a benefit in its Notice of Other Appeal. The United States also disagreed with the European Union's contention that Article 1.1(b) of the SCM Agreement covers only the existence of a benefit, and not its value. The United States asserted that the fact that the Appellate Body has found that a precise quantification of the amount of a subsidy is not required in proceedings under Articles 5 and 6 of the SCM Agreement does not mean that valuation is entirely outside the analysis of Article 1.1(b). Furthermore, the United States argued that, even though the European Union contends that the Panel "found no adequate basis"344 to reduce the amount of the subsidy from $1.05 billion to $775 million, the fact is that the Panel made no finding on that point. The United States contended that the four reasons alleged by the European Union in support of the Panel's approach are either not mentioned by the Panel, irrelevant, or both. For example, the Panel never found that the United States had conducted a "subjective"345 review to derive the $775 million figure. Lastly, the United States rejected the European Union's assertion that the Panel understood the $1.05 billion figure to be an "estimate", and that the benefit could be more than $1.05 billion in the light of the Panel's finding in its adverse effects analysis that this type of subsidy "is intended to multiply the benefit from a given expenditure".346 The United States argued that the Panel's statement about "multiply{ing} the benefit" in the adverse effects context does not, and should not, affect the valuation of the benefit for purposes of Article 1.1(b) of the SCM Agreement.

(ii) USDOD

158.
The United States challenges the Panel's finding that the financial contributions provided to Boeing under the USDOD assistance instruments confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement. The United States submits that such a finding is in error because the Panel failed to consider the payments and other contributions that Boeing makes under the assistance instruments.
159.
In the United States' view, the Panel "based its analysis of the benefit on a transaction that never occurred"347, that is, that the USDOD provided payments and access to its facilities on the condition that Boeing perform R&D activities principally for the benefit of Boeing without some form of royalties or repayment. The United States notes that the assistance instruments submitted to the Panel generally require a contribution from Boeing, and it also recalls that the Panel itself found that "under assistance instruments, the 'recipient' is required to contribute its own funds to the R&D on a cost-shared basis".348 Accordingly, "the exchange on which the Panel based its finding of benefit —payment for research for the benefit and use of Boeing without some form of royalty or repayment—is not what the R&D {assistance instruments did}".349
160.
The United States recalls that, in Canada – Aircraft, the Appellate Body emphasized that the comparison between the government's financial contribution and the market should focus on the "terms" offered by the government.350 In this respect, the United States contends that, "if the appreciation of the terms of the financial contribution is incorrect, the comparison with the market will also be incorrect, and any conclusion as to the existence of a benefit will be invalid".351 In this case, the Panel failed to address all of the relevant terms of the assistance instruments, and it did not consider that the terms it did address "required Boeing to perform research of benefit and use to {US}DOD and to contribute company resources to the R&D project".352
161.
The United States points out that, in making its analysis of benefit, the Panel first described what it characterized as the "core 'term'" of the USDOD assistance instruments, namely, "that Boeing use the payments and access to facilities it received from {US}DOD for the purpose of conducting aeronautics R&D work that is principally for Boeing's own benefit and use".353 The Panel also noted that both parties agreed that the proper benchmark for the comparison with the market is "the terms of a commercial transaction in which one entity pays another to conduct R&D".354 The United States acknowledges that, if a panel finds that a financial contribution is "economically irrational", it may conclude that such a transaction confers a benefit, even "absent evidence to the contrary".355 However, the United States contests the Panel's findings in this case because "the transaction the Panel found to be economically irrational … is not the financial transaction that actually occurred".356 In addition to the government payments to Boeing, Boeing contributed with its own resources to research that was of interest to the government.
162.
The United States asserts that, "when framed properly, the question posed by the Panel does not allow a conclusion in the abstract as to whether the transaction is economically rational".357 Instead, the answer should depend on the "aggregate terms of the transactions" and more specifically on "whether the actual exchange made by the parties was one that would have occurred on the market".358 The United States considers that this was the case with the USDOD assistance instruments.
163.
Therefore, the United States requests the Appellate Body to reverse the Panel's finding that the financial contribution it found to exist confers a benefit on Boeing for purposes of Article 1.1(b) of the SCM Agreement. The United States, however, does not request the Appellate Body to complete the analysis on this point because the Panel record lacks sufficient factual evidence in this respect.
164.
The United States also requests reversal of the Panel's statement, in paragraph 7.1205 of the Panel Report, that it "{did} not consider it credible that less than 1 per cent of the $45 billion in aeronautics R&D funding that {US}DOD provided to Boeing over the period 1991-2005 had any potential relevance to LCA". The United States asserts that this statement lacks an evidentiary basis and that, in making it, the Panel failed to make an objective assessment of the matter under Article 11 of the DSU. The United States further contends that the challenged statement is inconsistent with the Panel's own finding that "any attempt by the Panel to go further and arrive at {its} own estimate of the amount of the subsidy to Boeing's LCA division would be speculative".359 Moreover, it is difficult to reconcile with the fact that the Panel recognized differences as to the exact scope of the term "dual use" and emphasized that it was "not taking a position on this definitional issue".360 In the light of this, the United States asserts that any finding as to the value of USDOD funding for R&D of potential relevance to LCA "clearly lacks an evidentiary basis".361 Accordingly, the United States submits, the Appellate Body should "find this comment to be inconsistent with Article 11 of the DSU"362 and reverse the Panel's finding in that regard.

2. Washington State B&O Tax Rate Reduction

(a) Financial contribution – Revenue foregone

165.
The United States claims that the Panel erred in both the interpretation and application of the legal standard to be applied under Article 1.1(a)(1)(ii) of the SCM Agreement to determine when there is a financial contribution because government revenue that is otherwise due is foregone. Accordingly, the United States requests the Appellate Body to reverse the Panel's finding that the Washington State B&O tax rate reduction for manufacturers of commercial airplanes or components, enacted as part of House Bill 2294, constitutes a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement.

(i) Interpretation of Article 1.1(a)(1)(ii) of the SCM Agreement

166.
With regard to the interpretation of Article 1.1(a)(1)(ii), the United States submits that the Panel "departed from the standard set forth in the text of the SCM Agreement and engaged in an overly simplistic analysis that failed to take into account the complexity of the Washington {State} B&O tax system".363 The United States adds that, despite the fact that the Panel referenced passages from prior Appellate Body reports in US – FSC and US – FSC (Article 21.5 – EC), including those "warnings about the risks inherent in a simple 'but for' test"364, the Panel incorrectly paraphrased and interpreted the Appellate Body's guidance.365
167.
The United States argues that, contrary to the Panel's understanding, the requirement to compare the challenged tax measure with the treatment applied to comparable income for taxpayers in comparable circumstances is not limited to "other situations"366 where a "but for" test cannot be applied. In US – FSC (Article 21.5 – EC), the Appellate Body rejected the proposition that the "but for" test, or the "general rule" and "exception" analysis, reflects the correct standard under Article 1.1(a)(1)(ii). The United States understands the Appellate Body to have explained, "{i}nstead", that "the challenged taxation measure should always be compared to the treatment applied to comparable income, for taxpayers in comparable circumstances in the jurisdiction in issue".367 As the United States sees it, this standard is "to be applied in all cases, and a 'but for' test is simply one methodology that may be useful for applying that standard in certain, limited situations".368
168.
The United States considers that, while it may be possible in some situations to apply a "but for" test to perform the comparison required by Article 1.1(a)(1)(ii), the Appellate Body noted that "usually"369 it will be difficult to do so. According to the United States, the general rule requires a comparison with the tax treatment of legitimately comparable income. The Panel, however, "erroneously elevated the 'but for' test to the status of {a} general rule and treated the comparison of legitimately comparable income as an exception to that rule, only to be applied if no 'but for' situation can be established".370

(ii) Application of Article 1.1(a)(1)(ii) of the SCM Agreement

169.
With regard to the application of Article 1.1(a)(1)(ii), the United States challenges two aspects of the Panel's analysis. The United States submits that the Panel erred, first, by identifying as the normative benchmark, not the Washington State B&O tax system as a whole, but a subset of that tax system, namely, the tax rates applied to manufacturing, wholesaling, and retailing activities. According to the United States, the Appellate Body has clarified that the "prevailing domestic standard"371 reflected in a Member's tax laws provides the reference point for determining whether "revenue … foregone" is "otherwise due", and for identifying the fiscal treatment of the relevant income for taxpayers in comparable situations.372 The tax rates for manufacturing, wholesaling, and retailing activities do not, on their own, reflect the prevailing domestic standard. Rather, the Washington State B&O tax system "is a multi-rate tax system that applies numerous tax rates to numerous individually identified categories of activities, and the tax rate applied to aerospace manufacturing and selling is within the range of tax rates applied to other activities".373
170.
The United States observes that the Appellate Body has explained that "there must be a rational basis for comparing the fiscal treatment of the income subject to the contested measure and the fiscal treatment of certain other income".374 The Appellate Body has also stressed that "it is important to ensure that the examination under Article 1.1(a)(1)(ii) involves a comparison of the fiscal treatment of the relevant income for taxpayers in comparable situations".375 The United States asserts that there is no rational basis for the Panel to have disregarded the fiscal treatment of the other activities that are also individually identified in the Washington State tax code. The Panel erred in relying on the language used in House Bill 2294 and other documents produced by Washington State, because the terms used in those documents "do not identify whether income generated by some activities is 'legitimately comparable' to income generated by others, or whether one rate 'foregoes' revenue that would otherwise be due".376 Such language is thus irrelevant to a proper analysis under Article 1.1(a)(1)(ii), and does not justify the Panel's failure to take into account the fiscal treatment of other relevant income for taxpayers in comparable situations.
171.
The United States submits that, instead of heeding the Appellate Body's instruction to conduct a substantive analysis of the normative benchmark, "the Panel tried to create simplicity by reducing the analysis to two classes of income––aerospace manufacturing and manufacturing not covered by a sector-specific rate––without regard to any other classes of income".377 The United States contends that such isolated consideration of a few lines from the Washington State tax code is contrary to the Appellate Body's instruction to consider the tax rules applied through the contested measure with the fiscal treatment of other relevant income for taxpayers in comparable situations.
172.
The United States asserts that the European Communities did not explain why income from certain categories of business activity in Washington State becomes not "legitimately comparable" simply because the Washington State B&O tax system imposes multiple tax rates on different categories of business activity. The Panel likewise failed to explain or even address why business activities other than those in the categories of "manufacturing", "wholesaling", and "retailing" are not "legitimately comparable" to aircraft manufacturing and selling. The Panel's failure to consider this legal question was a result of its narrow focus on applying an oversimplified "but for" test.378 Even assuming, arguendo, that all business activities subject to the Washington State B&O tax are not "legitimately comparable", the Panel's implicit finding—that "manufacturing", "wholesaling", and "retailing" are the exclusive categories of business activity that are "legitimately comparable" to aircraft manufacturing and selling—is legally insufficient. This is because the Panel failed to take into account, for example, other separately identified categories of business activity, such as manufacturing of semiconductor materials and manufacturing and selling of nuclear fuel processors. Indeed, the Panel never addressed why the other categories of business activity separately identified in the Washington State tax code, including a variety of other manufacturing and selling activities, would or would not be "legitimately comparable" to aircraft manufacturing and selling. This failure by the Panel to identify properly "legitimately comparable" income for the purpose of making the comparison required under Article 1.1(a)(1)(ii) is fatal to the Panel's financial contribution finding.379
173.
The second error committed by the Panel in the application of Article 1.1(a)(1)(ii) was that it failed to examine properly the fiscal treatment of other taxpayers in comparable situations. The United States explains that evidence relating to the effective tax rate is highly relevant to an understanding of the "fiscal treatment" of income from business activities under the Washington State B&O tax system.380 The United States explains that, taking into account the pyramiding inherent in the Washington State B&O tax system, the B&O tax rate reduction lowered the effective tax rate for aerospace manufacturing from 2.53% to 1,578%, which exceeds the average effective tax rate for other Washington businesses of 1.53%. The reduced B&O tax rate, therefore, "is not a favorable rate"381 for aerospace manufacturing. Rather, it makes the effective tax rate for this sector "less unequal when compared to the effective tax rate applied to other business activities in the State".382 For these reasons, the United States considers that the tax rate applied to aerospace manufacturing and selling cannot be considered revenue foregone that is otherwise due under Article 1.1(a)(1)(ii) of the SCM Agreement.
174.
The United States notes that the Panel's rejection of its arguments regarding the effective B&O tax rate in Washington State appears to be founded on the United States' acknowledgment that such a rate "is not a normative benchmark by which to contrast the fiscal treatment afforded to legitimately comparable income".383 For the United States, the Panel's conclusion is a non sequitur because it does not render evidence of the effective tax rate irrelevant to the Panel's analysis. Instead, "evidence of the average effective rate of taxation is highly relevant––both factually and legally––to the determination of whether a financial contribution was provided as a result of lowering the nominal tax rate for aerospace manufacturing and selling".384 The United States considers that the Panel's failure to take this evidence into account in its analysis undermines its finding that the tax rate applied to aerospace manufacturing and selling constitutes a financial contribution.

(b) Specificity – Article 2.1(a) of the SCM Agreement

175.
The United States submits that the Panel erred in the application of Article 2.1(a) of the SCM Agreement by failing to consider, in its assessment of specificity, the entirety of the subsidy that the Panel had found to exist.
176.
The United States emphasizes that the evaluation under Article 2.1 of the SCM Agreement seeks "to determine whether a subsidy, as defined in paragraph 1 of Article 1, is specific".385 Therefore, the analysis "must address the specificity of the subsidy that has been found to exist, not some other subsidy, and not merely a part of the subsidy found to exist".386 According to the United States, once the Panel had identified the standard rate of taxation in Washington State, and found that the application of a tax rate lower than the standard rate would constitute a subsidy, it was required to assess whether and how Washington State tax law "explicitly limits" access to such a subsidy to "certain enterprises". The Panel failed to make such an assessment because it examined only whether the Washington State B&O tax rate reduction for aircraft manufacturing, wholesaling, and retailing was "specific"; however, "the exceptions or differentiated rules that the Panel found to exist are not limited to the aircraft manufacturing industry".387 The United States notes, for example, the Panel's own recognition that there are other manufacturing, wholesaling, and retailing activities, apart from those relating to selling commercial aircraft and components, that are subject to differential rates of taxation.388
177.
The United States argues that the Panel failed to explain the relevance of evidence that "the differential tax rates were introduced at a range of different times and for a variety of different purposes".389 The United States observes that the Panel's own description identifies the "exceptions" to the "general rates" as "all part of the same subsidy".390 The fact that the tax rates applied to other activities differ from the rate applied to aerospace manufacturing, wholesaling, and retailing, and the fact that the tax rates differ among one another would, at most, be relevant to the measurement of the benefit conferred to any particular recipient of the financial contribution. That question is separate from that of whether specificity exists. Moreover, the United States argues that nothing in Article 2.1(a) indicates that the purpose of a subsidy is relevant to the specificity analysis. As the Panel explained, de jure specificity must be discerned by evaluating "the face of the legislation or … other statements or means by which the granting authority expresses its will".391 The United States further asserts that the fact that differential taxation rates were created or modified at different times is not relevant to the specificity analysis. The relevant subject of the analysis should have been the Washington State tax code as it existed at the time of the Panel's specificity analysis.
178.
The United States notes that, despite recognizing the need to examine the Washington State tax code "as a whole"392, the Panel made a de jure specificity finding that is not supported by the evidence on the record and was based on irrelevant considerations.393 The Panel found that section 3 of House Bill 2294 effectuates the addition of aircraft manufacturing and selling to the existing "list of activities that are subject to a taxation rate that differs from" the "general rates".394 The Panel was, therefore, required to determine whether all of the industries that had been granted preferential taxation rates, taken together, would constitute "certain enterprises" for purposes of Article 2.1(a) of the SCM Agreement. The Panel, however, did not conduct such an analysis. Instead, it found that the taxation rates for other activities are not "part of a common subsidy programme" because they "were introduced at a range of different times and for a variety of different purposes".395 In the United States' view, consideration of timing and purpose has potentially "troubling implications"396, which can be avoided by properly focusing on the text of the legislation as it exists. In this regard, the United States notes that the different taxation rates are all set forth in the same provision of the Washington State tax code and each is described using nearly identical language.
179.
The United States submits that the relevant question before the Panel was whether access to the subsidy that it had found to exist—that is, the application of a preferential tax rate lower than the general rate—was explicitly limited to "certain enterprises". The Panel observed that the "differential rates" under the Washington State tax code were explicitly limited to certain enterprises397, but failed to analyze whether access was limited once all of the "differential rates" were considered collectively. Because the Panel "did not even attempt to ascertain" whether access to the subsidy was so limited, the United States maintains that the Panel's specificity finding "is without foundation".398
180.
Accordingly, the United States requests the Appellate Body to reverse the Panel's finding that "the B&O tax reduction granted to the aerospace industry under {House Bill} 2294 is a subsidy that is specific within the meaning of Article 2.1(a)".399 The United States adds that it is not possible for the Appellate Body to complete the analysis. The Panel failed to make any factual findings as regards to whether any collection of enterprises or industries in addition to "aerospace" would constitute "certain enterprises", and there is insufficient evidence on the record to enable the Appellate Body to complete the analysis and determine that the preferential taxation rates are de jure specific.

3. City of Wichita Industrial Revenue Bonds (IRBs) – Specificity

181.
The United States claims that the Panel erred in finding that the City of Wichita IRBs are "in fact … specific" within the meaning of Article 2.1(c) of the SCM Agreement on the basis that disproportionately large amounts of the subsidy were provided to Boeing and Spirit AeroSystems ("Spirit").400 The United States maintains that the Panel used the wrong baseline for its disproportionality analysis, and that it failed to take into account the lack of diversification of the economy of the City of Wichita.
182.
With respect to the Panel's baseline, the United States criticizes the Panel for using Boeing and Spirit company-specific employment levels relative to total manufacturing employment within the jurisdiction of the granting authority. The United States argues that the Panel's approach would result in findings of specificity even where a subsidy is "sufficiently broadly available"401 and there are no de jure or de facto limits on access to the subsidy. The United States explains that there is no reason to assume that there is necessarily a "proportionate" relationship between, on the one hand, the number of employees of a particular company or group of companies relative to all employment in the Wichita manufacturing sector and, on the other hand, the amount of IRB tax benefits received. It would have made much more sense, according to the United States, to look at qualifying investments during the relevant time period, or some other factor that bears an actual relationship to the number of companies that qualify for IRB funding. The Panel's choice of baseline also took no account of the fact that some industries "may employ disproportionate numbers of people for a range of perfectly justifiable reasons".402 Nor did the Panel account for the fact that many government programmes may be broadly or generally available, but the number of companies that use the programmes may not be directly proportionate to the level of overall employment that they represent, or that certain companies may not be able to assume the administrative effort required to participate in the programme, or otherwise be interested in participating in it. These examples confirm that the Panel's approach, by focusing on a single numerical ratio and using the total level of manufacturing employment within the jurisdiction of the granting authority as its baseline, does not provide a valid benchmark for determining proportionality. Instead, it results in a finding of de facto specificity "whenever discrepancies exist between a company's relative level of employment within an economy as a whole, and the amount of subsidy it receives".403
183.
The United States contends that the Panel could have avoided these problems if it had followed the approach, advocated by the United States, of using the group of recipients of the alleged subsidy as the baseline for the disproportionality analysis. This approach takes into account the proportion of companies that actually or potentially qualify for IRB benefits, as opposed to determining specificity "based on a broader baseline factor that would bear no relation to the proportion at which recipients would be expected to use the subsidy".404 As for the Panel's concern that the United States' approach would be inconsistent with the purpose of determining whether a subsidy is sufficiently broadly available throughout an economy, the United States contends that the panel in EC and certain member States – Large Civil Aircraft came to the opposite conclusion. That panel concluded that, "where the subsidy at issue has been granted pursuant to a subsidy programme, that programme should normally be used for the purpose of identifying the 'baseline' or 'reference data' needed to perform a disproportionality analysis".405 The United States asserts that, had the Panel used the actual or potential recipients of the subsidy programme as the baseline in this case, instead of the total level of manufacturing employment within the jurisdiction of the granting authority, it would not have found de facto specificity, "because there is no information on the record to suggest that Boeing's and Spirit's share of the Wichita IRB benefits was disproportionate to their respective shares of the overall group of actual or potential recipients of such IRBs".406
184.
The United States maintains that the Panel also erred by failing to take into account the extent of economic diversification in the City of Wichita. The United States observes that it provided evidence to the Panel to support its argument that the City of Wichita economy was undiversified and focused on aircraft production. Despite the fact that the European Communities did not submit any rebuttal evidence, and notwithstanding the requirement in Article 2.1(c) that the extent of diversification of an economy shall be taken into account, the Panel rejected the United States' argument. The Panel "simply ignored that … it was for the {European Communities} to demonstrate and for the Panel to find, that in addition to the appearance of 'disproportionality', the subsidy was in fact specific, even when taking into account the lack of diversification of the Wichita economy and the evidence submitted by the United States to that effect".407
185.
At the oral hearing, the United States reiterated its criticisms of the Panel's approach. First, the United States noted that the relevance of Boeing's share of economic activity for the disproportionality analysis is unclear, regardless of the baseline group. Where a subsidy is granted to virtually all applicants in amounts in proportion to the construction and improvement activity for which the subsidy is sought, the fact that a company receives more of the subsidy because it engages in more eligible activity cannot amount to a finding that this company has received disproportionately large amounts of subsidy. Second, even assuming arguendo that Boeing's share of economic activity was relevant, Boeing's employment level says very little about the company's place within the economy, because no single indicator is capable of doing so alone. According to the United States, the European Communities failed to present all the necessary evidence to reach a meaningful conclusion as regards Boeing's place in the Wichita economy. Third, it is also unclear why Boeing's share of total economic activity in the entire manufacturing sector would be relevant for the Panel's disproportionality analysis. In this respect, the United States agreed with Australia that comparing a recipient's portion of the subsidy against the baseline of its relative economic importance in the economy as a whole would always lead to disproportionality and hence specificity to be found.
186.
For these reasons, the United States requests the Appellate Body to reverse the Panel's finding that the City of Wichita IRBs are "specific" within the meaning of Article 2.1(c) of the SCM Agreement.

4. Adverse Effects

(a) Technology effects of the aeronautics R&D subsidies

187.
The United States claims that the Panel erred in finding that the aeronautics R&D subsidies have caused adverse effects under Articles 5(c) and 6.3 of the SCM Agreement. At the outset, the United States recalls that the Panel conducted its examination of the adverse effects of the aeronautics R&D subsidies in two stages, beginning with "an analysis of the effects of the subsidies on Boeing's pricing and product offerings, followed by an analysis of the effects of the subsidies … on Airbus' prices and sales".408 The United States' arguments address both stages of the Panel's analysis.

(i) The Panel's finding that the aeronautics R&D subsidies have improved Boeing's product offering for the 787

188.
The United States raises two separate and independent grounds of appeal with respect to the first stage of the Panel's analysis. First, the United States asserts that the Panel erred when finding that the aeronautics R&D subsidies have caused adverse effects under Articles 5(c) and 6.3 of the SCM Agreement because they have "contributed in a genuine and substantial way to Boeing's development of technologies for the 787".409 Second, the United States claims that the Panel erred in its application of Article 6.3(c) of the SCM Agreement "by failing to incorporate all of its relevant findings into the counterfactual analysis of whether, absent the subsidies, Boeing would have launched the 787 at the same level of technological innovation in 2004".410

The Panel's findings on a genuine and substantial link between the aeronautics R&D subsidies and the 787

189.
The United States submits that the facts, as found by the Panel, do not establish the existence of a genuine and substantial relationship of cause and effect between the aeronautics R&D subsidies and the development of technologies for the 787. The United States notes that the Panel made a number of findings411 and characterized the NASA R&D subsidies as "strategically‑focused R&D programmes with a significant and pervasive commercial dimension, undertaken in collaboration with U.S. industry to provide competitive advantages to U.S. industry by funding research into high risk, high pay‑off research of the sort that individual companies are unlikely to fund on their own".412 Regarding the USDOD's ManTech and DUS&T programmes, the Panel further noted that these programmes are "focused on pursuing 'dual use' technologies through collaborative efforts with U.S. industry".413 However, the Panel also made "a number of other findings" that show that the links the Panel attempted to forge between NASA/USDOD R&D and the availability of technologies to the development of the 787 in 2004 do not amount to "a genuine and substantial relationship of cause and effect".414 The United States thus asserts that, "having made these findings, the Panel had to take account of them in its analysis of causation", and the failure to do so means that the Panel's findings "were in error".415 The United States makes the following specific arguments in this regard.
190.
First, the United States asserts that much of the NASA R&D at issue in this dispute was neither in the causal pathway of the technologies that the Panel considered most relevant to the 787, nor was it aimed at making Boeing more competitive.416 Although the Panel "correctly recognized that NASA research in particular areas of aeronautics science would have different degrees of relevance to Boeing's ability to launch the 787 in 2004", it erred when examining "only three programs" and then "extrapolating their effects" to the other NASA and USDOD programmes.417 By doing so, the Panel "exaggerated the effect"418 of these remaining programmes. The United States recalls that the Panel focused on the work on composites and composites technologies studied under the three NASA programmes—namely, the Advanced Composites Technology Program ("ACT programme"), the Advanced Subsonic Technology Program ("AST programme"), and the Research and Technology Base Program ("R&T Base programme")—because, in the Panel's view, they were "the most commercially and technologically significant programmes".419 The United States therefore contests the Panel's "broad conclusion" about the nature and magnitude of the entirety of Boeing's participation in the aeronautics R&D programmes, which was based solely on the Panel's view about this "subset of the research" under the three programmes that the Panel considered to be "on the high end of significance to the 787".420
191.
The United States recalls, in this respect, that the Panel's findings establish that most of the NASA R&D programmes "did not relate to the identified areas of commercial advantage for the 787", and that they "were not directed at a competitive advantage for industry in the first place".421 As an example, the United States points to the Aviation Safety Program ("AS programme"), which is aimed at "saving lives", and not at conferring a "competitive advantage" or developing technologies for "Boeing's exclusive or predominant use".422 It also refers to the High-Speed Research Program ("HSR programme"), which accounts for "nearly 40 per cent of the $1.05 billion in NASA contracts with Boeing that the Panel found to be subsidies", and notes that the research under this programme related to supersonic flight and "was not on the causal pathway that … led to the technologies selected for the subsonic 787".423 In the light of this, the United States contends that the Panel's findings indicate "little or no relationship"424 between the AS programme or the HSR programme supersonic research, on the one hand, and the technology used on the 787, on the other hand. Consequently, the United States asserts that the presence of this research in the larger category of aeronautics R&D subsidies analyzed by the Panel "call{s} into question whether the remaining research related to the 787 was sufficient to cause serious prejudice of the type the Panel found to exist".425
192.
Second, the United States contends that, even when the NASA research was on the causal pathway toward technologies incorporated in the 787, the Panel found that the research stopped at a level far lower than what Boeing required in order to apply a technology in a commercial context.426 The United States notes that the Panel itself recognized that "it takes a significant amount of time and effort to mature a technology from initial concept to commercial application".427 Indeed, the Panel illustrated the distance between different levels of technology maturation by reference to the NASA technology readiness levels ("TRLs"), a scale that traces the progress of research from "Basic scientific/engineering principles observed and reported" (TRL 1) to "operational use of actual system tested, and benefits proven" (TRL 9).428 The Panel further found that "NASA's research efforts focus on the development of higher risk technologies up to TRL 6 (prototype demonstration)".429 The United States contends that any "further work needed to mature technologies" to reach "operational use" (TRL 9) would have to be performed by Boeing or some other entity.430
193.
In this respect, the United States notes that the evidence cited by the Panel indicates that, for airframe technologies, it takes 16.5 years to move from TRL 1 to TRL 9, 11.3 years of which are devoted to moving from TRL 6 to TRL 9.431 This means that it takes, on average, 5.2 years to move from TRL 1 to TRL 6. The United States highlights, however, that the Panel "did not use these figures, apparently because it misunderstood the table it was citing".432 The Panel stated that "the average time from TRL 1 to TRL 6 was 11.3 years …, while the average time from TRL 1 to TRL 9 was 16.5 years".433 In the United States' view, these findings by the Panel demonstrate that "even if a NASA technology is in the causal pathway toward a technology ready for operational use … on the 787", it would "require{} substantial additional private development work to get there."434
194.
Third, the United States emphasizes that Boeing devoted a substantial amount of its own research toward developing the technologies used on the 787.435 Specifically, the United States recalls that the Panel itself found that "Boeing conducted a substantial amount of research on its own to develop and launch the 787"436, and that NASA aeronautics research "stops at TRL 6 or lower", whereas the major time commitment in the development process "comes in the subsequent stages of turning technological concepts into commercial applications".437 The Panel also found that, "even at the earlier stages of development, {Boeing} conducted work independent of NASA".438 Therefore, the United States contends that NASA‑funded research played a small role in Boeing's ability to launch a technologically innovative 787 in 2004.
195.
Fourth, the United States points to the role of Boeing's suppliers, who are responsible for a substantial amount of the technology needed for the 787, and to Boeing's own experience, which largely contributed to its ability to integrate those technologies into a finished product.439 According to the United States, even if the Panel were correct that Boeing had NASA and USDOD to "thank{} … in large part"440 for its technology integration abilities in civil aeronautics, the Panel's findings establish that the "company's home‑grown capabilities were also responsible for a large part" of "Boeing's ability to accommodate the technology stream coming from suppliers".441 Therefore, the suppliers' contribution to Boeing's knowledge base attenuates any link between the aeronautics R&D subsidies and the technology used on the 787.
196.
The United States further considers that the Panel failed to make an objective assessment under Article 11 of the DSU, since there was no meaningful support in the evidence for the finding that Boeing's ability to use other companies' commercially available technologies on the 787 was due to "the knowledge and experience that Boeing obtained pursuant to the aeronautics R&D subsidies as an integrator of the various technologies".442 The Panel simply accepted the European Communities' assertion that "NASA provides relevant learning and experience to perform the task of integrating technologies supplied by third parties into a complete {LCA}"443; but the European Communities cited no evidence. The United States submits that there was, however, evidence on the Panel record suggesting that Boeing had developed experience in the application of composites in primary and secondary structures since the 1960s, had further developed this experience when work on the 777 began in the late 1980s, and had continued to develop it in the 1990s. This work involved integrating the technologies of multiple suppliers independent of the NASA and USDOD R&D programmes. Therefore, the United States asserts, the Panel's finding that Boeing could meet the challenge of integrating technologies from a wide variety of suppliers "thanks in large part to NASA and {US}DOD funding and support"444 lacks a basis in the evidence and should be reversed.
197.
The United States also alleges that the integration of a variety of supplier technologies in a commercial programme differs greatly, in both scale and quality, from the work executed pursuant to the NASA and USDOD R&D programmes at issue. Even the largest NASA programme (the HSR programme) amounted to only $440 million, which, in the end, was only $307 million given that NASA cut the programme short.445 Furthermore, the nature of the "integration" in a NASA project is different in three critical ways from the "integration" that Boeing performed in producing LCA: (i) NASA‑funded aeronautics R&D projects do not advance beyond the laboratory and do not deal with real-world problems of applying these technologies; (ii) most NASA research does not involve making usable physical parts and components; and (iii) even in those rare cases when NASA projects called for making a physical component, it was at most one or two Articles over a period of months or years for laboratory test purposes.446 The United States adds that another key difference between even the largest NASA project (the HSR programme) and Boeing's development of LCA relates to the person in charge of the project. For the former, NASA gives instructions as to "what gets done and how it gets done"447, whereas on an LCA development project, Boeing plays that role.
198.
Fifth, the United States contends that NASA's public dissemination requirement lessens the value of the aeronautics R&D subsidies to Boeing.448 The United States recalls the Panel's finding that "NASA publicly disseminated the reports that summarized the results of the research conducted under the eight {NASA} programmes at issue, and that this represents a situation in which Boeing has given up something of value in exchange for the funds and access to facilities, equipment and employees that it receives".449 The United States recognizes that the Panel also found that "there are restrictions on the dissemination of certain aspects of NASA‑funded research results, and that public dissemination does not occur immediately".450 However, the "critical implication" of the latter finding is that Limited Exclusive Rights Data ("LERD") clauses "only restrict dissemination of 'certain aspects' of research results for a 'limited ' time".451 Therefore, despite the fact that the Panel declined to attach an amount to how much of the NASA funding did not confer a benefit, the point remains that the Panel found that some portion of the $2.6 billion in funding had less value because of NASA's dissemination policies.
199.
Sixth, the United States asserts that, relative to the immense R&D expenditures of Boeing and its suppliers, that the magnitude of the aeronautics R&D subsidies is too small to create a genuine and substantial relationship of cause and effect with the technologies used on the 787.452 The United States contends that the $2.6 billion in aeronautics R&D subsidies found by the Panel, spread over the 18 years from 1989 to 2006, "is small compared to Boeing's own {R&D} spending".453 In this regard, the United States notes that, when a full aircraft development programme like the 787 is under way, Boeing's R&D costs "run to more than $2 billion per year, as opposed to the average of $153 million per year of aeronautics R&D subsidies found by the Panel".454 Therefore, since the $2.6 billion total "is less significant than it appears", and the total cost of developing an LCA is "greater", any link between the research and Boeing's ability to develop and launch the technologically innovative 787 in 2004 "is that much more attenuated".455
200.
In conclusion, the United States submits that, when considered in their totality, the Panel's findings do not establish a genuine and substantial relationship of cause and effect and thus do not meet the requirement under Articles 5 and 6.3 of the SCM Agreement for the aeronautics R&D subsidies to have caused adverse effects.
201.
At the oral hearing, the United States rejected the European Union's assertion that the United States is disputing the Panel's findings of fact. The United States responded that it is challenging only one finding of fact under Article 11 of the DSU (that is, that NASA research projects are "largely responsible"456 for Boeing's expertise as an integrator of aircraft), and that, otherwise, it accepts the facts as laid out by the Panel. In the United States' view, the issue of causation is a legal issue involving the application of the causation standard in the SCM Agreement to the facts at issue.
202.
In the light of the above, the United States requests the Appellate Body to reverse the Panel's finding that the aeronautics R&D subsidies caused adverse effects to the interests of the European Communities, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement.

The Panel's findings regarding the counterfactual analysis

203.
The United States raises a second ground of appeal, namely, that the Panel's counterfactual analysis was insufficient to demonstrate that, but for the aeronautics R&D subsidies, Boeing would not have been able to launch the 787 in 2004.457 The United States describes the Panel's examination of whether Boeing would have launched the 787 when it did in the absence of the subsidies as "cursory"458, and it criticizes the Panel for failing to take into account its own findings regarding the nature of the subsidy, Boeing's research priorities, its actual research activities, and its available resources. A proper counterfactual causation analysis, in accordance with the Appellate Body's reasoning in US – Upland Cotton (Article 21.5 – Brazil), would have more rigorously examined all of the Panel's findings and looked at all of the Panel's findings in the context of the conditions of competition.459 It is the United States' contention that several findings of the Panel demonstrate that Boeing's commercial behaviour relating to the launch of the 787 would not have changed in the absence of the aeronautics R&D subsidies.
204.
The United States first recalls the Panel's conclusion that "{t}he essence of the intense competition between Boeing and Airbus is to design and build better airplanes".460 The United States sees this statement as recognition that LCA manufacturers "have strong commercial incentives to spend the resources needed to gain a technical advantage over competitors".461 The United States also points to the Panel's finding that under the aeronautics R&D programmes "the definition of the scope and programme of research was arrived at in collaboration with industry"462 and that, as a result, the aeronautics R&D programmes focused on creating a competitive advantage for Boeing.463 Boeing therefore "knew what research needed to be done, knew that it would result in a competitive advantage, and could formulate a plan for the deployment of resources to meet those objectives".464 Boeing's expected competitive advantage would, in the United States' view, "provide a compelling motive to do just that".465
205.
In addition, the United States points to the Panel's finding that private parties can obtain access to NASA goods and services through reimbursable Space Act Agreements, and that, under these instruments, "NASA requires full reimbursement, defined as 'full cost recovery' for the goods, services or facilities provided".466 The United States therefore submits that a private party may engage the NASA facilities, equipment, and employees by paying the agency the cost of their use. The United States further refers to the Panel's finding that Boeing was self‑funding research on the same topics as NASA, and was doing so at the same time.467 The United States also underscores the Panel's finding that Boeing had sufficient funds to achieve the same learning and experience as that which may have resulted from the aeronautics R&D subsidies at issue.468
206.
The United States asserts that all of these findings "point to a straightforward counterfactual conclusion"469, namely, that, in the absence of the subsidies, Boeing "would have funded this 'critical' research itself, either using Boeing's own resources or by obtaining them from NASA under a reimbursable Space Act Agreement".470 Accordingly, a "proper counterfactual" analysis would have determined that "the aeronautics R&D subsidies are not a genuine and substantial cause of adverse effects".471 The Panel reached "the opposite conclusion" and provided "no explanation reconciling this conclusion with its other findings".472
207.
The United States also argues that the Panel's rejection of the proposition that Boeing would have performed the same research on the grounds that there are "large disincentives for private sector investment in long term, high risk aeronautical R&D"473 is contradicted by the Panel's finding that the aeronautics R&D research has a greater effect than what its dollar value would indicate, because "it is intended to multiply the benefit from a given expenditure".474 The United States further notes that the Panel rejected the "United States' invitation to compare the amounts of the aeronautics R&D subsidies with Boeing's payments to shareholders".475 The United States explains, however, that it "did not 'invite' this comparison", but rather a comparison of "net income and cash flow from operations over the period"476, which it had demonstrated "were sufficient to support Boeing's commercial behaviour absent the subsidies".477 It showed that such commercial behaviour would have taken place "even if Boeing had made all $16 billion in shareholder payments that it made over the period".478 Moreover, the Panel made a "more important error" by not accepting the proposition that "the effect of the aeronautics R&D subsidies was essentially to benefit Boeing's shareholders"479, which is a necessary implication of the counterfactual analysis.
208.
In conclusion, the United States submits that the Panel failed properly to conduct its counterfactual analysis, and thus failed to establish a causal link between the subsidies and the adverse effects to the interests of the European Communities. For these reasons, the United States requests the Appellate Body to reverse the Panel's finding that, "absent the aeronautics R&D subsidies, Boeing would not have been able to launch an aircraft incorporating all of the technologies that are incorporated on the 787 in 2004, with promised deliveries commencing in 2008"480, and also to reverse the dependent findings that those subsidies caused adverse effects to the interests of the European Communities within the meaning of Articles 5(c) and 6.3 of the SCM Agreement.

(ii) The Panel's finding with respect to the effects of the aeronautics R&D subsidies on Airbus' prices and sales

209.
With respect to the second stage of the Panel's analysis of the technology effects481, the United States appeals the Panel's finding that "the effect of the subsidies was significant lost sales, {threat of} displacement and impedance, and price suppression with regard to the A330 or Original A350".482

Lost sales and threat of displacement or impedance

210.
The United States notes, first, that the Panel erred in finding that Airbus "lost" sales of the A330 and Original A350 in sales campaigns where "the customer chose the 787 over the Original A350".483 It observes that the Qantas, Ethiopian Airlines, Icelandair, and Kenya Airways sales campaigns "each involved a single transaction", and "{i}n none of these transactions did the customer consider buying both an Original A350 and an A330".484 The United States thus contends that, "to the extent that any of these transactions resulted in a lost sale of the {Original} A350, it {could} not also be a lost sale of the A330", since Airbus "cannot lose the same sale twice".485
211.
The United States further asserts that, in each of the lost sales found by the Panel, Airbus either "did not bid any aircraft"486, "removed the A330 from consideration in favour of the Original A350"487, or "offered only the Original A350 against the 787".488 Therefore, "{n}one of these campaigns involved a potential order for the Original A350 and the A330".489 The United States adds that, "even assuming arguendo that the 787 was unavailable at the time of the campaign" or "lacked the technological features that swayed the customers", Airbus "could only have expected to obtain additional sales of the Original A350", but not of the A330 as well.490 Consequently, the lost sales findings regarding the A330 do not meet the requirements of Article 6.3(c) of the SCM Agreement. Because the Panel used these "invalid" lost sales findings as the sole basis of its findings of threat of displacement and impedance of the A330 in Australia, Ethiopia, Iceland, and Kenya, the United States asserts that the latter findings are "similarly inconsistent" with Article 6.3(b) of the SCM Agreement.491
212.
Second, the United States argues that, in finding lost sales for the Original A350 and A330 involving Ethiopian Airlines, Icelandair, and Kenya Airways, the Panel erred because it failed to take account of "customer‑specific situations showing that Boeing's victory in the campaign was not the effect of the aeronautics R&D subsidies".492 The Panel correctly found that "Boeing's customer relationship precluded lost sales findings at Continental Airlines, All Nippon Airways, and Japan Airlines".493 Yet, the United States submits, "{s}ubstantially the same situation" existed for Ethiopian Airlines, Icelandair, and Kenya Airways, namely, "{t}hey had all‑Boeing fleets, with Ethiopian Airlines and Kenya Airways seeking a replacement for the 767, and Icelandair looking to replace its 757s".494 The Panel's finding was therefore contradictory in that respect.
213.
Third, the United States argues that a "similar inconsistency" exists between the Panel's lost sales finding with respect to Icelandair and the Panel's finding of no lost sale for Royal Air Maroc, by virtue of Airbus' "failure to submit a formal offer within the time limit specified by the airline (Royal Air Maroc)".495 Regarding the Icelandair campaign, the United States observes that, for a sale to be "lost" by a Member, "there must have been some competition in which the Member's producer 'might have had' the sale".496 If the Member's producer did not attempt to get the sale or did not make an offer that responded to the customer's requirements, it could not have expected to gain the sale and, therefore, cannot be understood to have "lost" it.497 The United States thus contends that "{t}he fact that Boeing secured an order does not necessarily mean, as the Panel appeared to presume, that Airbus lost the order"498, and notes that there is no evidence concerning the Icelandair sale to demonstrate that, "if Boeing had not secured the order, Airbus would have actually secured it".499
214.
Lastly, the United States argues that, since the Panel's erroneous finding of lost sales was "the sole basis"500 for the Panel's finding that there was threat of displacement or impedance in Ethiopia, Iceland, and Kenya, the latter finding lacks any support. Accordingly, the United States requests the Appellate Body to reverse these findings by the Panel under Articles 5(c) and 6.3(b) of the SCM Agreement.

Threat of displacement or impedance

215.
The United States submits that the Panel erred in finding a threat of displacement and impedance of Airbus 200‑300 seat LCA under Article 6.3(b) of the SCM Agreement in Ethiopia, Kenya, and Iceland.501 First, the Panel declined to assess whether these countries constituted "third country markets" within the meaning of Article 6.3(b).502 Second, the Panel's finding of threat of displacement and impedance in Ethiopia, Kenya, and Iceland, based solely on a single sales campaign in each country, means that the Panel interpreted and applied Article 6.3(b) in a manner that "reduces 'market' to a nullity".503 If the drafters had intended such an interpretation, Article 6.3(b) would describe displacement or impedance "from a third country" and omit any reference to "a third country market".504 Therefore, the United States requests the Appellate Body to reverse the Panel's findings of threat of displacement and impedance.

Price suppression

216.
The United States argues that the Panel erroneously found that the effect of the aeronautics R&D subsidies was significant price suppression in the worldwide market for 200‑300 seat LCA. First, with respect to the A330, the United States asserts that the Panel failed to satisfy the requirements for a finding of significant price suppression, because "it did not conduct a valid counterfactual assessment" and "relied on a coincidence of trends analysis that did not examine closely enough the evolution of the trends".505 The United States explains that the Panel relied on a perceived coincidence between the 2004 launch of the 787 and a decline in A330 prices, instead of conducting a meaningful counterfactual analysis of A330 prices.506 Moreover, the Panel drew the wrong conclusion from worldwide market share data for 200‑300 seat LCA.507 Although acknowledging that the arithmetic conclusions drawn by the Panel in comparing 2000‑2003 trends with 2004‑2006 trends were correct, the United States nevertheless argues that the Panel erred in "failing to look more rigorously at the evolution of these trends", which reveals that "no discernible correlation exists between the 787's market presence and A330 prices".508 Thus, the Panel's A330 price suppression findings are erroneous because the Panel relied on a "temporal coincidence" between market share levels and A330 prices that "contradicts its inferences".509
217.
Second, with respect to the Original A350, the United States maintains that the Panel's finding of significant price suppression fails because, "with no pricing data of any kind and anecdotal evidence covering barely 30 per cent of sales", the evidence with respect to the Original A350 "is insufficient to support any conclusion about overall pricing levels".510 The United States recalls that the Panel identified the worldwide market for 200‑300 seat LCA as the "same market" in which it would analyze whether the effect of the subsidies was significant price suppression for the Original A350 and for the other Airbus aircraft in that "product market" (the A330 and A350XWB‑800).511 The United States does not appeal this aspect of the Panel's reasoning, but contends that, "once the Panel selected that market as the frame of reference", it was required to assess, in accordance with Article 6.3(c) of the SCM Agreement, "whether prices of Airbus 200‑300 seat {LCA} in that worldwide market, were significantly suppressed".512
218.
The United States further states that, although it was the European Communities' burden to present evidence in support of its assertions, the European Communities did not provide any evidence regarding price trend data for the Original A350.513 Furthermore, because an "evaluation of price suppression without prices is a non sequitur", the United States submits that any conclusion reached by the Panel fails, "for that reason alone", to establish an inconsistency with Article 6.3(c) of the SCM Agreement.514 The United States notes that, in an attempt "to plug the hole" left by the European Communities, the Panel referred to "anecdotal evidence on 'certain sales'".515 However, the "sales" in question were "three campaigns that provide{d} an insufficient basis from which to draw conclusions" on whether prices in "the same market" have been suppressed to a significant degree.516 The three Original A350 sales campaigns cited by the European Communities represented 30.4% of the total orders for that aircraft in "the same market", and hence there was "simply no way of knowing what happened with Original A350 pricing in the majority of sales for that aircraft".517
219.
Therefore, the United States submits that, absent evidence as to actual prices or price trends for the Original A350 in the world market, the Panel had no way to test whether the actual evolution of prices conformed to its theory that "the combination of the superior technology and lower operating costs of the 787 clearly affected the comparative value of Airbus' A330 and {Original} A350, leaving Airbus no other option but to reduce the prices of its aircraft in order to compete".518 An "expectation based on economic reasoning"519 is not enough to justify the finding necessary to establish an inconsistency with Article 6.3(c) of the SCM Agreement: that "the effect of the subsidy is … significant price suppression … in the same market".520
220.
Finally, as regards Airbus's 200‑300 seat LCA market as a whole, the United States submits that, in assessing whether the effect of the aeronautics R&D subsidies to the 787 was significant price suppression in the same market within the meaning of Article 6.3(c), the Panel's task was to determine whether significant price suppression existed for "the product in question, as a whole, in the relevant market, as a whole".521 The Panel chose to examine price suppression on a "model‑by‑model basis"522, despite the fact that the product in question consisted of all three of the 200‑300 seat Airbus models identified by the European Communities: the A330, the Original A350, and the A350XWB‑800. Furthermore, the Panel rejected the European Communities' assertion of significant price suppression of the A350XWB‑800523, and, moreover, that it had an insufficient basis from which to find significant price suppression for the Original A350. This, according to the United States, "leaves a finding of price suppression exclusively with respect to … the A330".524 A price suppression finding specific to the A330 cannot be considered as a sufficient basis for the Panel's conclusion as to the effects "with respect to the 200‑300 seat wide‑body LCA product market".525 The United States therefore requests the Appellate Body to reverse the Panel's conclusion that an effect of the aeronautics R&D subsidies is significant price suppression with regard to Airbus 200‑300 seat LCA.

(iii) Conclusion on technology effects of the aeronautics R&D subsidies

221.
In sum, the United States claims that the Panel erred in finding that the aeronautics R&D subsidies have caused adverse effects under Articles 5(c) and 6.3 of the SCM Agreement. The United States requests the Appellate Body to reverse the Panel's finding that the aeronautics R&D subsidies have caused adverse effects to the interests of the European Union by contributing "in a genuine and substantial way to Boeing's development of technologies for the 787".526 In addition, because the Panel failed to conduct a proper counterfactual analysis, the United States requests the Appellate Body to reverse the Panel's finding that, "absent the aeronautics R&D subsidies, Boeing would not have been able to launch an aircraft incorporating all of the technologies that are incorporated on the 787 in 2004, with promised deliveries commencing in 2008"527, and the dependent findings that those subsidies caused adverse effects to the interests of the European Communities. Finally, the United States requests the Appellate Body to reverse the Panel's findings regarding the effects of the aeronautics R&D subsidies on the prices and sales of Airbus LCA competing in the 200‑300 seat LCA market.

(b) Price effects of the tied tax subsidies

222.
The United States raises a number of claims against the Panel's analysis of price effects under Articles 5 and 6.3 of the SCM Agreement. Each of these claims arises from the United States' view that the Panel "took a number of impermissible shortcuts in its analysis of the tax subsidies"—that is, the FSC/ETI subsidies and the B&O tax rate reductions—"allegedly conferred on Boeing", and therefore "did not establish a genuine and substantial relationship of cause and effect between the subsidies and the adverse effects alleged by the {European Communities}".528 The United States requests the Appellate Body to reverse the Panel's finding that the effects of the FSC/ETI subsidies and the B&O tax rate reductions in the 100‑200 seat and 300‑400 seat LCA markets were significant price suppression, significant lost sales, and displacement and impedance, within the meaning of Articles 5(c) and 6.3(b) and (c) of the SCM Agreement.

(i) The Panel's counterfactual analysis

223.
The United States submits that the Panel erred by dispensing with considerations highlighted by the Appellate Body as important or critical for panels when evaluating claims under Articles 5(c) and 6.3 of the SCM Agreement.
224.
The United States argues that the Panel's counterfactual analysis failed to address whether Boeing's prices would have been higher in the absence of the tax subsidies. A counterfactual analysis of the effect of subsidies on prices should evaluate whether the subsidized producer's prices "would have been higher in the absence of the subsidies (that is, butfor, the subsidies)".529 Instead, the Panel stated that it had "no doubt"530 that the availability of the FSC/ETI subsidies, in combination with the B&O tax rate reductions, enabled Boeing to lower its prices beyond the level that would otherwise have been economically justifiable, and that, in some cases, this led to Boeing securing sales that it would not otherwise have made, while, in other cases, it led to Airbus being able to secure the sale only at a reduced price. The United States contends that "{t}his brief explanation is no substitute for a counterfactual analysis", and that the Panel "failed to establish that, absent the tax subsidies, Boeing's prices would have been at a higher, 'economically justifiable' level".531
225.
According to the United States, the parties' argumentation and evidence narrowed the counterfactual question before the Panel to whether, but for the subsidies, Boeing would have had the resources to act in an economically rational manner. The Panel, however, rejected the European Communities' argument that, but for the subsidies, Boeing would have been forced, as a matter of economic necessity, to raise its prices. Accordingly, the Panel erred under Articles 5 and 6.3 of the SCM Agreement by finding that the tax subsidies caused Boeing to lower its prices beyond an "economically justifiable" level.

Magnitude of the subsidies

226.
The United States argues that the Panel failed to conduct a proper analysis of the magnitude of the tax subsidies. The Appellate Body has stated that the magnitude of a subsidy is an important factor in the analysis of whether the effect of the subsidy is significant price suppression.532 In fact, when it found that the B&O tax rate reductions were, by themselves, too small to cause serious prejudice, the Panel implicitly recognized that the magnitude could be the decisive factor. The Panel, however, conducted no such analysis in relation to the FSC/ETI measure. The United States maintains that both parties put forward calculations showing that the amount of the FSC/ETI benefit was consistently less than 1% of the value of Boeing's annual sales from 2001 to 2006. The Panel dismissed this evidence as not "particularly informative or illustrative of the capacity for the FSC/ETI subsidies to have affected Boeing's prices, and by extension, Airbus' prices and sales"533, but failed to recognize that this meant the complaining party had failed to meet its burden of proof. In respect of its lost sales claims, the European Communities' own evidence shows that a counterfactual increase in Boeing's prices by less than 1% would not have changed the outcome of campaigns won for the 737 and 777. As to significant price suppression, the European Communities never asserted or attempted to demonstrate that suppression of Airbus' prices by less than 1% ad valorem would constitute significant price suppression. Because those subsidies were simply too small during the 2004-2006 period to have had the effect of causing Boeing to win significant sales and market share from Airbus, or to suppress Airbus' prices by a significant degree, the United States asserts that no causal link exists.

Correlation between the subsidies and their effects

227.
The United States contends that the Panel failed to address the absence of any correlation between the amount of the tax subsidies and the alleged lost sales, price suppression, and changes in market share. The Appellate Body has previously found that a discernible correlation would be expected between significantly suppressed prices and the challenged subsidy if the effect of the subsidy is significant price suppression, and that this "is an important factor in any analysis of whether the effect of a subsidy is significant price suppression".534 The same reasoning applies in evaluating whether the effect of the subsidy is significant lost sales or displacement or impedance. In this dispute, no correlation exists between the level of subsidies and the evolution of prices and sales for LCA in the 2001-2003 and 2004-2006 periods. The United States argues that these facts show that no meaningful relationship exists between the tax subsidies and Boeing's prices for and sales of LCA, and yet the Panel never made any findings on this issue.

Non-attribution factors

228.
The United States argues that the Panel failed to perform an adequate non-attribution analysis, as required under Articles 5(c) and 6.3 of the SCM Agreement. Although the Appellate Body has observed that "it is necessary to ensure that the effects of other factors on prices are not improperly attributed to the challenged subsidies"535, the Panel did not engage in any meaningful analysis of the effects of other factors on the prices and sales of either Boeing or Airbus. The United States had argued before the Panel that Airbus A320 and A340 sales and prices were not higher than they were because: (i) Airbus undercut prices for both 100-200 seat and 300-400 seat LCA, which increased its market share dramatically but set customer expectations for low prices; (ii) Boeing decided to price the 737 and 777 more competitively following significant market share losses to Airbus; and (iii) prices for Airbus' four-engine A340 fell (as compared to the more fuel-efficient 777) when fuel prices spiked in 2005 and 2006. Yet the Panel failed to explain inconsistencies between its findings and evidence on the record regarding these non-subsidy factors. In fact, the United States argues, the Panel did not mention anynon-subsidy factors in its analysis, other than to state that the United States' arguments and evidence "do not reverse or attenuate the pervasive and consistent pricing advantage that Boeing had in LCA campaigns in the 2001-2003 period due to the availability of the FSC/ETI subsidies".536 The United States considers that the Panel's statement simply restated the test enunciated by the Appellate Body, but did nothing to ensure that the effects of other factors on prices were not improperly attributed to the challenged subsidies.

(ii) Treatment of FSC/ETI as prohibited export subsidies

229.
The United States submits that the Panel erred by presuming that a finding that a subsidy is prohibited under Part II of the SCM Agreement also signifies that the subsidy causes serious prejudice under Part III of that Agreement. In particular, the United States refers to the Panel's statement that, "precisely because the FSC/ETI subsidies are contingent on Boeing making export sales, we are entitled to determine, absent reliable evidence to the contrary, that by their very nature, they will have trade distortive effects".537 Although the Panel did not use the words "presumption" or "presume", the mechanism it described is indistinguishable from a rebuttable presumption. The United States considers that the relationship that the Panel posited between findings under Parts II and III is contrary to the terms of the SCM Agreement.
230.
The United States contends that there are "many important differences"538 between Parts II and III of the SCM Agreement. Unlike Part III, Part II applies without a finding of specificity, requires no finding as to the effect of the subsidy, and has no significance requirement. In addition, Part II places an absolute prohibition on certain subsidies, whereas Part III allows a Member to maintain a subsidy if it can remove any adverse effects. The flaw in the Panel's reasoning is that Part II prohibits export-contingent subsidies and import-substitution subsidies even if they have no adverse effects. As a result, a finding under Part II cannot be said to "entitle"539 a panel to assume trade‑distortive effects in other Parts of the SCM Agreement.
231.
The United States argues that an examination of the context provided by various provisions of the SCM Agreement reveals further flaws in the Panel's reasoning. When the negotiators meant to transpose legal standards from one Part of the SCM Agreement to another, they created specific cross‑references. The absence of such a cross-reference indicates that findings under Part II do not create presumptions for purposes of Part III. Now expired Article 6.1 in Part III provided that "serious prejudice in the sense of subparagraph (c) of Article 5 shall be deemed to exist" in specified circumstances, but subsidies prohibited under Part II of the SCM Agreement were not covered. Part V further confirms the Panel is wrong because, although Article 15 sets out detailed conditions under which an investigating authority may find that subsidized imports cause material injury, it does not contain any language entitling such an authority to determine that a prohibited subsidy will have trade-distortive effects. The United States considers that Article 6 requires analysis of "a number of inherently factual issues", and that "{t}he Panel's analytical short-cut side-steps these issues and, therefore, does not provide the type of robust serious prejudice analysis the Appellate Body has found to be necessary".540
232.
The United States also considers that the WTO dispute settlement reports relied upon by the Panel are of limited relevance, because they did not involve actionable subsidy claims under Articles 5 and 6.3 of the SCM Agreement. Moreover, these reports do not support the Panel's conclusions. Although the Appellate Body referred, in Canada – Aircraft, to cases involving prohibited export subsidies "for which the adverse effects are presumed"541, there is no indication that the Appellate Body meant to refer to adverse effects for purposes of Article 5. In any event, the Appellate Body's statement was obiter dictum, and is best understood as generally describing the situation under Part II, and not as creating a presumptive status for Part III of the SCM Agreement. Moreover, although the panel in Brazil – Aircraft stated that prohibited subsidies are "specifically designed to affect trade"542, this does not mean that they will necessarily have trade-distortive effects. The United States adds that the SCM Agreement does not focus on the intent of the granting authority but, rather, on the actual effects of the subsidy.
233.
The United States contends that the Panel's aggregation of its analysis of the FSC/ETI and B&O tax measures also "exposes a peril"543 of the Panel's approach. The Panel found that the B&O tax rate reductions, by themselves, were of insufficient magnitude to cause serious prejudice with respect to 200‑300 seat LCA. However, the Panel disregarded evidence that FSC/ETI benefits were relatively insignificant in comparison to Boeing's delivery and order values. Rather than explain why this magnitude data was irrelevant, the Panel relied on the FSC/ETI tax measure's status as an export subsidy. Thus, the United States argues, the Panel's presumption as to the "trade-distortive effects" of prohibited subsidies was "outcome-determinative"544 in the finding that the Washington State and City of Everett B&O tax rate reductions caused serious prejudice in the 100-200 seat and 300-400 seat LCA markets.
234.
The United States submits that, without the Panel's presumption of trade-distortive effects, its entire finding that the tax subsidies caused adverse effects falls apart. This is because "{t}he finding that subsidies tied to sales will have an impact on those sales is accurate, but meaningless in this context, as it indicates nothing about whether the impacts take the form of displacement, impedance, price suppression, or lost sales, or whether any impact has the requisite level of significance".545 The observations that subsidies can have a significant impact or can enable certain behaviour by Boeing are also insufficient, as neither establishes that Boeing actually engaged in the behaviour that these subsidies would make possible. The United States concludes that, because the Panel's assessment was "so dependent on its improper reference to FSC's status as an export subsidy"546, the Panel's finding with regard to the tax subsidies does not establish that they caused adverse effects in the 100‑200 seat and 300-400 seat LCA markets.

(iii) Additional claims relating to the Panel's analysis of price suppression, lost sales, and displacement and impedance

Price suppression
235.
The United States submits that the Panel found significant suppression of prices for Airbus' A320 and A340 without undertaking the requisite price analysis for those aircraft and Boeing's 737 and 777. The Appellate Body has observed that, under Article 6.3(c) of the SCM Agreement, an assessment of general price trends is "clearly relevant to significant price suppression (although, as the {p}anel itself recognized, price trends alone are not conclusive)".547 With respect to the 737/A320 and 777/A340 market segments, the Panel: (i) never referred to the pricing trend data on the record for the relevant aircraft; (ii) never examined other relevant factors affecting pricing, such as Airbus' price‑undercutting and high production levels or the role of surging fuel costs to evaluate whether the pricing data was consistent with price suppression; and (iii) never assessed the degree of price suppression to determine whether it was "significant" within the meaning of Article 6.3(c). The United States maintains that the Panel's finding is therefore inadequate as a matter of law under Article 6.3(c), and that, given that price trends were "plainly inconsistent with a price suppression phenomenon"548, the Panel had no rational basis for finding that the tax measures suppressed prices to a significant degree.

Lost sales

236.
The United States argues that, contrary to its own findings on the aeronautics R&D subsidies and with the reports of other panels, the Panel did not identify the transactions that it found to have caused significant lost sales. According to the United States, the Panel's findings are insufficient to establish that serious prejudice existed for purposes of Article 6.3(c). Moreover, the United States contends that "the high degree of vagueness"549 in these findings means that the Panel failed to satisfy its obligation under Article 12.7 of the DSU to include in its report "the basic rationale behind any findings and recommendations that it makes".
237.
The United States maintains that a finding of significant lost sales under Article 6.3(c) requires a positive finding as to each of the operative elements: (i) significance; (ii) lost sales; and (iii) a market in which they occur. The absence of any one of these criteria means that there is no serious prejudice under Article 6.3(c). Furthermore, a panel must specify what facts exist to meet each of these elements. The use of the word "sales" highlights that the "lost sales" under Article 6.3(c) are not generalized levels of market share or volume, but individual transactions. The United States considers that this is confirmed by the panel's examination and findings in EC and certain member States – Large Civil Aircraft as to each of the transactions alleged by the United States in that case to be a lost sale.
238.
By contrast, when it came to analyzing sales of 100-200 seat and 300-400 seat LCA, the Panel did not indicate what particular sales it concluded had been lost. Instead, it stated simply that the effects of the subsidies "constitute significant lost sales … within the meaning of Article 6.3(c) of the SCM Agreement".550 The Panel's analysis neither provides the names of the campaigns nor refers to other materials that do. The Panel summarized the European Communities' allegations of lost sales of its 100-200 seat A320 to Ryanair, Japan Airlines, Singapore Airline Leasing Enterprise, Lion Air, and DBA, and of its 300-400 seat A340 to Singapore Airlines, Air New Zealand, and Cathay Pacific. However, the Panel's "vague" finding that there were "significant lost sales" offers no hint as to which transactions it considered to be lost sales.551 The United States considers that "{t}his silence means that the Panel's finding failed to meet the minimum substantive requirements under Article 6.3{(c)} for finding that the effect of {the} subsidies is significant lost sales".552
239.
Finally, the United States contends that the Panel also failed to meet the procedural requirement under Article 12.7 of the DSU that its report "set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes". In Chile – Price Band System (Article 21.5 – Argentina), the Appellate Body explained that the explanations and reasons provided by a panel must suffice "to disclose the essential, or fundamental, justification for those findings and recommendations".553 The United States contends that the Panel acted inconsistently with this obligation because, in failing to identity the lost sales transactions, the Panel failed to set out the basic rationale behind its finding, and therefore violated Article 12.7 of the DSU.

Displacement and impedance

240.
The United States argues that the Panel also erred by not naming the third countries in which it found displacement or impedance, and, accordingly, did not make findings sufficient to establish that serious prejudice existed for purposes of Article 6.3(b). The United States also contends that "the high degree of vagueness" in these findings means that the Panel has failed to satisfy its obligation under Article 12.7 to include in its report "the basic rationale behind any findings and recommendations that it makes".554
241.
The United States argues that a finding of displacement or impedance under Article 6.3(b) requires a positive finding as to each of the operative elements: (i) a subsidy; (ii) a like product; (iii) a Member exporting that product; and (iv) a third-country market. The absence of any one of these criteria means that there is no serious prejudice under Article 6.3(b). Moreover, a panel must specify what facts exist to meet each of the elements. The fact that Article 6.3(b) requires that displacement or impedance exists with regard to a "market" further underscores that it requires a market-by-market conclusion, and not a generalized finding with regard to multiple markets. The United States points out that, when the panel in EC and certain member States – Large Civil Aircraft addressed claims under Article 6.3(b), it identified the third-country markets in which it found that displacement had occurred (Australia, Brazil, China, India, Korea, Mexico, Singapore, and Chinese Taipei).555
242.
The United States maintains that, before the Panel, the European Communities identified the relevant third-country markets—that is, Singapore, Indonesia, and Japan for 100-200 seat LCA and Singapore, New Zealand, and Hong Kong, China for 300-400 seat LCA. The Panel addressed none of this evidence, instead making a generalized conclusion that the effects of the subsidies are "displacement and impedance of exports from third country markets, within the meaning of Article 6.3(b)".556 The Panel referenced the third-country markets by name only in the section of its Report summarizing the European Communities' arguments, and did not indicate which of them were encompassed in its generalized finding. The United States thus considers that the Panel's silence means that it "failed to meet the minimum substantive requirements under Article 6.3(b) for finding that the effect of {the} subsidies is to displace or impede exports of a like product in a third country".557
243.
The United States raises two additional claims in respect of the Panel's analysis of displacement and impedance. First, the United States asserts that the Panel omitted critical steps in its analysis. The United States observes that a necessary component of any displacement or impedance analysis under Article 6.3(b) is an assessment of the data concerning the relationship between exports of the subsidized product and the like product in the third-country market at issue. Although the record in this dispute included data on market share and delivery volumes in each of the third-country markets identified by the European Communities, the Panel never referred to that data. The United States argues that, as a result, the Panel made it "impossible to discern in which of the markets it found displacement and impedance"558, and consequently neglected to conduct the analysis needed to show that displacement or impedance had occurred.
244.
The United States further maintains that, to the extent the Panel made a finding of displacement and impedance with regard to countries in which Airbus had 0% or 100% of deliveries, a finding of displacement, impedance, or both would be inconsistent with Article 6.3(b). This is the case for the 737 and A320 aircraft in Singapore, where Airbus retained a 100% market share throughout the reference period, and in Indonesia, where Boeing made no deliveries, but where Airbus went from making no deliveries in 2004-2005, to making two deliveries in 2006. The United States maintains that, "{i}n any counterfactual analysis, Airbus' market share would be unchanged".559 For the 777 and A340 aircraft in the Hong Kong, China and New Zealand markets, because there were no Airbus deliveries during the reference period, "there was no basis for the Panel to find displacement".560
245.
Second, the United States argues that, because the Panel made no findings that any of the countries in which the European Communities alleged displacement or impedance was a "market", the Panel erred in applying its "generalized findings of displacement and impedance"561 in third-country markets covering Indonesia, Japan, and Singapore for the 100‑200 seat LCA, and covering Hong Kong, China, New Zealand, and Singapore for the 300-400 seat LCA. The United States requests reversal of any findings the Panel is considered to have made with regard to displacement or impedance of these products in the indicated markets.
246.
In conclusion, the United States submits that the Panel did not satisfy the requirements for establishing that the tax subsidies have caused adverse effects to the interests of the European Union, and therefore requests the Appellate Body to reverse the Panel's findings under Articles 5(c) and 6.3(b) and (c) of the SCM Agreement in that regard.

D. ARGUMENTS OF THE EUROPEAN UNION – APPELLEE

1. NASA Procurement Contracts and USDOD Assistance Instruments

(a) Financial contribution – Application of the "purchase of services" test

(i) NASA

247.
The European Union argues that the Appellate Body should reject the United States' appeal of the Panel's findings that the payments and other support provided to Boeing under the NASA procurement contracts constitute a financial contribution under Article 1.1(a)(1) of the SCM Agreement.
248.
The European Union recalls its own appeal of the Panel's legal interpretation of Article 1.1(a)(1) as excluding "purchases of services" from the scope of that provision. The European Union asserts that, if the Appellate Body agrees with the European Union and reverses the Panel's interpretation, the United States' appeal of the Panel's finding would be moot, because NASA's payments to Boeing would be "indisputably"562 financial contributions, irrespective of whether they could be properly characterized as "purchases of services". This, contends the European Union, is because "the sole basis"563 of the United States' appeal of the financial contribution finding is that the Panel erred by finding that NASA‑funded research is not part of a purchase of services.
249.
The European Union argues that, in any event, the United States' arguments that the Panel improperly applied Article 1.1(a)(1) without considering the evidence of what the government received is essentially an argument that the Panel improperly weighed the facts. This type of argument is, at best, one that implicates an analysis under Article 11 of the DSU, and not an error of application. In support, the European Union relies on the Appellate Body report in EC and certain member States – Large Civil Aircraft, which states that "how the {p}anel reasoned over disputed facts"564 properly pertains to Article 11 of the DSU. As a consequence of the above, the content of the United States' appeal should have been raised, if at all, as a violation of Article 11 of the DSU and under the standard of review appropriate to such an allegation.
250.
Even assuming arguendo that the United States can bring this claim under Article 1.1(a)(1), the European Union maintains that the United States' arguments fail on their merits because they rely entirely on an erroneous characterization of the Panel Report. In the European Union's view, the Panel properly considered the totality of the evidence, and used its discretion as the trier of facts to conclude that the NASA R&D contracts are not properly characterized as "purchases of services". Its finding therefore stands, even though the United States came to a different conclusion as to the principal beneficiary and user of the NASA R&D contracts.
251.
The European Union does not dispute that the Panel did not fully discuss in its Report every argument and piece of evidence that the United States had put forward, but notes that the Panel specifically stated that it had in fact considered the evidence "in its totality".565 The European Union points out that the United States does not criticize the Panel for basing its decision on the five particular categories of evidence566, but, rather, contends that the Panel's consideration of each of these five categories was entirely one-sided and unbalanced. In the European Union's view, however, "it is clear from the Panel Report"567 that the Panel discussed the limited evidence and arguments on the record, and the fact that the United States disagrees with the Panel's overall weighing of the evidence and the Panel's ultimate conclusion does not constitute an erroneous application of Article 1.1(a)(1).
252.
With respect to the Panel's alleged failure to make an "objective assessment" under Article 11 of the DSU, the European Union disagrees that the Panel systematically failed to consider the evidence submitted by the United States. The European Union asserts that the Panel Report shows that the Panel did in fact assess the evidence that the United States alleges the Panel failed to consider. Specifically, the Panel considered the evidence regarding NASA's objectives, the alleged benefit and use to the government of NASA R&D, and the alleged usefulness of the programmes to the government and to unrelated third parties. However, the European Union submits, nothing in the evidence and arguments cited by the United States demonstrates that the Panel exceeded its discretion to weigh the facts in finding that the principal benefit and use of the NASA R&D contracts accrued to Boeing, rather than the government.
253.
At the oral hearing, the European Union recalled that neither of the participants has appealed the Panel's "principally for the benefit and use" test for determining whether the NASA and USDOD R&D contracts and agreements at issue were genuine "purchases of services". Rather, the European Union argued that any such test was unnecessary, since there is no exclusion for purchases of services under Article 1.1(a)(1) of the SCM Agreement, and the United States appeals only the Panel's application of the test.
254.
In the European Union's view, the Appellate Body has no basis to reconsider or reverse the Panel's test, given that neither the United States nor the European Union has appealed the test. Furthermore, the Appellate Body should recall that the Panel never indicated that this was the exclusive test for determining whether any transaction is a genuine purchase of services. If the Appellate Body were to reverse the test—contrary to the wishes of both participants—and formulate its own test, the European Union submits that the Panel's underlying factual findings and the uncontested facts about the NASA R&D contracts at issue would be more than sufficient to allow the Appellate Body to complete the analysis under any possible test.

(ii) USDOD

255.
As it did with NASA, the European Union argues, at the outset, that, if the Appellate Body were to reverse the Panel's finding that Article 1.1(a)(1) of the SCM Agreement excludes from its scope transactions properly characterized as "purchase of services", this reversal would render moot the United States' appeal relating to the Panel's conclusion that the payments and other support provided through the USDOD assistance instruments are financial contributions.
256.