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Recourse to article 21.5 of the DSU by the European Union - Report of the Panel

CASES CITED IN THIS REPORT

Short TitleFull Case Title and Citation
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, p. 515
Argentina – Footwear (EC) Panel Report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/R, adopted 12 January 2000, as modified by Appellate Body Report WT/DS121/AB/R, DSR 2000:II, p. 575
Argentina – Textiles and Apparel Panel Report, Argentina – Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items, WT/DS56/R, adopted 22 April 1998, as modified by Appellate Body Report WT/DS56/AB/R, DSR 1998:III, p. 1033
Australia – Automotive Leather II (Article 21.5 – US) Panel Report, Australia – Subsidies Provided to Producers and Exporters of Automotive Leather – Recourse to Article 21.5 of the DSU by the United States, WT/DS126/RW and Corr.1, adopted 11 February 2000, DSR 2000:III, p. 1189
Australia – Salmon Panel Report, Australia – Measures Affecting Importation of Salmon, WT/DS18/R and Corr.1, adopted 6 November 1998, as modified by Appellate Body Report WT/DS18/AB/R, DSR 1998:VIII, p. 3407
Australia – Salmon (Article 21.5 – Canada) Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse to Article 21.5 of the DSU by Canada, WT/DS18/RW, adopted 20 March 2000, DSR 2000:IV, p. 2031
Brazil – Aircraft (Article 21.5 – Canada) Appellate Body Report, Brazil – Export Financing Programme for Aircraft – Recourse by Canada to Article 21.5 of the DSU, WT/DS46/AB/RW, adopted 4 August 2000, DSR 2000:VIII, p. 4067
Brazil – Desiccated Coconut Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut, WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, p. 167
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft (Article 21.5 – Brazil) Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW, adopted 4 August 2000, DSR 2000:IX, p. 4299
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, DSR 2000:VI, p. 2985
Canada – Renewable Energy / Canada – Feed-in Tariff Program Appellate Body Reports, Canada – Certain Measures Affecting the Renewable Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013, DSR 2013:I, p. 7
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, p. 3045 (Corr.1, DSR 2006:XII, p. 5473)
Chile – Price Band System Panel Report, Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/R, adopted 23 October 2002, as modified by Appellate Body Report WT/DS207AB/R, DSR 2002:VIII, p. 3127
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, p. 513
China – Broiler Products Panel Report, China - Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States, WT/DS427/R and Add.1, adopted 25 September 2013, DSR 2013:IV, p. 1041
China – Raw Materials Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012, DSR 2012:VII, p. 3295
Dominican Republic – Import and Sale of Cigarettes Panel Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/R, adopted 19 May 2005, as modified by Appellate Body Report WT/DS302/AB/R, DSR 2005:XV, p. 7425
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:II, p. 591
EC – Bananas III Panel Reports, European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/R/ECU (Ecuador) / WT/DS27/R/GTM, WT/DS27/R/HND (Guatemala and Honduras) / WT/DS27/R/MEX (Mexico) / WT/DS27/R/USA (US), adopted 25 September 1997, as modified by Appellate Body Report WT/DS27/AB/R, DSR 1997:II, p. 695 to DSR 1997:III, p. 1085
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, p. 965
EC – Bed Linen (Article 21.5 – India) Panel Report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSUby India, WT/DS141/RW, adopted 24 April 2003, as modified by Appellate Body Report WT/DS141/AB/RW, DSR 2003:IV, p. 1269
EC – Chicken Cuts Appellate Body Report, EuropeanCommunities – Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R, WT/DS286/AB/R, adopted 27 September 2005, and Corr.1, DSR 2005:XIX, p. 9157
EC – Chicken Cuts Panel Reports, European Communities – Customs Classification of Frozen Boneless Chicken Cuts, WT/DS269/R (Brazil) / WT/DS286/R (Thailand), adopted 27 September 2005, as modified by Appellate Body Report WT/DS269/AB/R, WT/DS286/AB/R, DSR 2005:XIX, p. 9295 / DSR 2005:XX, p. 9721
EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011, DSR 2011:VII, p. 3995
EC – Fasteners (China) Panel Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/R and Corr.1, adopted 28 July 2011, as modified by Appellate Body Report WT/DS397/AB/R, DSR 2011:VIII, p. 4289
EC – IT Products Panel Reports, European Communities and its member States – Tariff Treatment of Certain Information Technology Products, WT/DS375/R / WT/DS376/R / WT/DS377/R, adopted 21 September 2010, DSR 2010:III, p. 933
EC – Selected Customs Matters Appellate Body Report, European Communities – Selected Customs Matters, WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, p. 3791
EC and certain member States – Large Civil Aircraft Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted 1 June 2011, DSR 2011:I, p. 7
EC and certain member States – Large Civil Aircraft Panel Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011, as modified by Appellate Body Report, WT/DS316/AB/R, DSR 2011:II, p. 685
EC and certain member States – Large Civil Aircraft (Article 21.5 – US) Panel Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the DSU by the United States, WT/DS316/RW and Add.1, circulated to WTO Members 22 September 2016 {appealed by European Union 13 October 2016}
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998, DSR 1998:IX, p. 3767
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random Access Memories from Korea, WT/DS336/AB/R and Corr.1, adopted 17 December 2007, DSR 2007:VII, p. 2703
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, p. 3
Mexico – Corn Syrup (Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSUby the United States, WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, p. 6675
Mexico – Olive Oil Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from the European Communities, WT/DS341/R, adopted 21 October 2008, DSR 2008:IX, p. 3179
Thailand – Cigarettes (Philippines) Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the Philippines, WT/DS371/R, adopted 15 July 2011, as modified by Appellate Body Report WT/DS371/AB/R, DSR 2011:IV, p. 2299
US – 1916 Act Appellate Body Report, United States – Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, DSR 2000:X, p. 4793
US – Anti-Dumping and Countervailing Duties (China) Appellate Body Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, adopted 25 March 2011, DSR 2011:V, p. 2869
US – Anti-Dumping and Countervailing Duties (China) Panel Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/R, adopted 25 March 2011, as modified by Appellate Body Report WT/DS379/AB/R, DSR 2011:VI, p. 3143
US – Anti-Dumping Measures on Oil Country Tubular Goods Panel Report, United States – Anti-Dumping Measures on Oil Country Tubular Goods (OCTG) from Mexico, WT/DS282/R, adopted 28 November 2005, as modified by Appellate Body Report WT/DS282/AB/R, DSR 2005:XXI, p. 10225
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany, WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX, p. 3779
US – Carbon Steel (India) Appellate Body Report, United States – Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted 19 December 2014, DSR 2014:V, p. 1727
US – Carbon Steel (India) Panel Report, United States – Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/R and Add.1, adopted 19 December 2014, as modified by Appellate Body Report WT/DS436/AB/R, DSR 2014:VI, p. 2189
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009, DSR 2009:III, p. 1291
US – Countervailing and Anti-Dumping Measures (China) Appellate Body Report, United States – Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/AB/R and Corr.1, adopted 22 July 2014, DSR 2014:VIII, p. 3027
US – Countervailing Measures (China) Appellate Body Report, United States – Countervailing Duty Measures on Certain Products from China, WT/DS437/AB/R, adopted 16 January 2015
US – Countervailing Measures (China) Panel Report, United States – Countervailing Duty Measures on Certain Products from China, WT/DS437/R and Add.1, adopted 16 January 2015, as modified by Appellate Body Report WT/DS437/AB/R
US – Customs Bond Directive Panel Report, United States – Customs Bond Directive for Merchandise Subject to Anti-Dumping/Countervailing Duties, WT/DS345/R, adopted 1 August 2008, as modified by Appellate Body Report WT/DS343/AB/R / WT/DS345/AB/R, DSR 2008:VIII, p. 2925
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, p. 1619
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations", WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC (Article 21.5 – EC II) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW2, adopted 14 March 2006, DSR 2006:XI, p. 4721
US – FSC (Article 21.5 – EC II) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – Second Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/RW2, adopted 14 March 2006, upheld by Appellate Body Report WT/DS108/AB/RW2, DSR 2006:XI, p. 4761
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales Corporations" – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p. 55
US – 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, p. 119
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, p. 4697
US – Large Civil Aircraft (2nd complaint) Appellate Body Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012, DSR 2012:I, p. 7
US – Large Civil Aircraft (2nd complaint) Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/R, adopted 23 March 2012, as modified by Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina) Appellate Body Report, United States – Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina – Recourse to Article 21.5 of the DSU by Argentina, WT/DS268/AB/RW, adopted 11 May 2007, DSR 2007:IX, p. 3523
US – Shrimp (Thailand) Panel Report, United States – Measures Relating to Shrimp from Thailand, WT/DS343/R, adopted 1 August 2008, as modified by Appellate Body Report WT/DS343/AB/R / WT/DS345/AB/R, DSR 2008:VII, p. 2539
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, p. 571
US – Softwood Lumber IV (Article 21.5 – Canada) Appellate Body Report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada – Recourse by Canada to Article 21.5 of the DSU, WT/DS257/AB/RW, adopted 20 December 2005, DSR 2005:XXIII, p. 11357
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, p. 3
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R, Add.1 to Add.3 and Corr.1, adopted 21 March 2005, as modified by Appellate Body Report WT/DS267/AB/R, DSR 2005:II, p. 299
US – Upland Cotton (Article 21.5 – Brazil) Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil, WT/DS267/AB/RW, adopted 20 June 2008, DSR 2008:III, p. 809
US – Upland Cotton (Article 21.5 – Brazil) Panel Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil, WT/DS267/RW and Corr.1, adopted 20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW, DSR 2008:III, p. 997
US – Upland Cotton (Article 22.6 – US II) Decision by the Arbitrator, United States – Subsidies on Upland Cotton – Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 7.10 of the SCM Agreement, WT/DS267/ARB/2 and Corr.1, 31 August 2009, DSR 2009:IX, p. 4083
US – Washing Machines Appellate Body Report, United States – Anti-Dumping and Countervailing Measures on Large Residential Washers from Korea, WT/DS464/AB/R and Add.1, adopted 26 September 2016
US – Washing Machines Panel Report, United States – Anti-Dumping and Countervailing Measures on Large Residential Washers from Korea, WT/DS464/R and Add.1, adopted 26 September 2016, as modified by Appellate Body Report WT/DS464/AB/R
US – Zeroing (EC) (Article 21.5 – EC) Appellate Body Report, United States – Laws, Regulations and Methodology for Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS294/AB/RW and Corr.1, adopted 11 June 2009, DSR 2009:VII, p. 2911
US – Zeroing (EC) (Article 21.5 – EC) Panel Report, United States – Laws, Regulations and Methodology for Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU by the European Communities, WT/DS294/RW, adopted 11 June 2009, as modified by Appellate Body Report WT/DS294/AB/RW, DSR 2009:VII, p. 3117
US – Zeroing (Japan) Appellate Body Report, United States – Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R, adopted 23 January 2007, DSR 2007:I, p. 3
US – Zeroing (Japan) (Article 21.5 – Japan) Appellate Body Report, United States – Measures Relating to Zeroing and Sunset Reviews – Recourse to Article 21.5 of the DSU by Japan, WT/DS322/AB/RW, adopted 31 August 2009, DSR 2009:VIII, p. 3441
US – Zeroing (Japan) (Article 21.5 – Japan) Panel Report, United States – Measures Relating to Zeroing and Sunset Reviews – Recourse to Article 21.5 of the DSU by Japan, WT/DS322/RW, adopted 31 August 2009, upheld by Appellate Body Report WT/DS322/AB/RW, DSR 2009:VIII, p. 3553

ABBREVIATIONS

AbbreviationDescription
ACT Program NASA Advanced Composites Technology Program
AECA Arms Export Control Act
AFRL Air Force Research Laboratory
AJCA American Jobs Creation Act of 2004
AMC American Metalcasting Consortium
Anti-Dumping Agreement Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
ARMD NASA Aeronautics Research Mission Directorate
AST Program NASA Advanced Subsonic Technology Program
ATCAS Program NASA Advanced Technology Composite Aircraft Structures Program
AWACS program element DOD Airborne Warning and Control System program element
Bayh-Dole Act United States Code, chapter 35, sections 200-212
B&O Business and Occupation
BCI Business Confidential Information
BOA Basic Ordering Agreement
CASP NASA Cross Agency Support Program
CATT Program South Carolina Center for Accelerated Technology Training Program
CFD Computational Fluid Dynamics
CFRP Carbon Fibre Reinforced Plastic
FAA CLEEN Program FAA Continuous Lower Energy Emissions, and Noise Program
CRA Charles River Associates
DARPA Defense Advanced Research Project Agency
DAS Defense Acquisition System
D.O. Delivery Order
DOD U.S. Department of Defense
DRAGON Project Diminishing Manufacturing Sources Replacement of Avionics for Global Operations and Navigation Project under the DOD AWACS program element
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
DUS&T program element DOD Dual Use Science & Technology program element
EADS European Aeronautics Defence and Space Company N.V.
EAR Export Administration Regulations
EMD Engineering, Manufacturing and Development
ERA Project Environmentally Responsible Aviation Project under the NASA Integrated Systems Research Program
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of 2000
FAA U.S. Federal Aviation Administration
FAR U.S. Federal Acquisition Regulation
FILOT Fee-in-lieu-of taxes
FOIA Freedom of Information Act
FPDS-NG Federal Procurement Data Base – Next Generation
FSC Foreign Sales Corporation
FSC/ETI Foreign Sales Corporation/Extraterritorial Income
FY Fiscal Year
FYDP Future Years Defense Program
GAO U.S. Government Accountability Office
GATT 1994 General Agreement on Tariffs and Trade 1994
HB 2294 House Bill 2294 in the State of Washington
HB 2466 House Bill 2466 in the State of Washington
HLFC Hybrid Laminar Flow Control
HSBI Highly Sensitive Business Information
HSR Program NASA High Speed Research Program
ICAO International Civil Aviation Organization
IDIQ Indefinite Delivery/Indefinite Quantity
IP Intellectual Property
IR&D Independent Research and Development
IRB Industrial Revenue Bond
IRS U.S. Internal Revenue Service
ITAR U.S. International Traffic in Arms Regulations
ITR International Trade Resources LLC
JCATI Joint Center for Aerospace Technology Innovation in the State of Washington
JCIDS DOD Joint Capabilities Integration and Development System
LCA Large Civil Aircraft
LCF Large Cargo Freighter
LERD Limited Exclusive Rights Data
IP ManTech program elements Manufacturing Technology/Industrial Preparedness program elements administered individually by the Defense Logistics Agency, Air Force, Navy and Office of Secretary of Defense
MCIP Multi-County Industrial Park
MTOW Maximum take-off weight
NASA U.S. National Aeronautics and Space Administration
NATO North Atlantic Treaty Organization
NIAR National Institute for Aviation Research
NPD NASA Policy Directive
NPV Net Present Value
NRA NASA Research Announcement
PBBES Planning, Programming, Budgeting, and Execution Systemfor commissioning RDT&E under systems acquisition/military aircraft program elements
PRO-ACT Project Procurement Readiness Optimization-Advanced Casting Technology Project under the Defense Logistics Agency IP ManTech program element
PRSEUS Pultruded Rod Stitched Efficient Unitized Structure
R&D Research and Development
R&T Base Program NASA Research and Technology Base Program
RDT&E Research, Development, Test and Evaluation
RDT&E Program DOD Research, Development, Test and Evaluation Program
readySC South Carolina Technical College System's job training programme
RFID Radio Frequency Identification
RFI Request for Information
RFP Request for Proposal
ROA Research Opportunities in Aeronautics
S&T Science and Technology
SBU Standard Billing Units
S.C. State of South Carolina
SCM Agreement Agreement on Subsidies and Countervailing Measures
SOW Statement of Work
Space Act National Aeronautics and Space Act of 1958, as amended
SEC U.S. Securities and Exchange Commission
TIPRA Tax Increase Prevention and Reconciliation Act of 2005
TRL Technology Readiness Level

1 Introduction

1.1 Complaint by the European Union1

1.1.
The European Union's complaint in this proceeding under Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) concerns the alleged failure of the United States to implement the recommendations and rulings adopted by the Dispute Settlement Body (DSB) in the original proceeding US – Large Civil Aircraft (2nd complaint).
1.2.
The panel report and Appellate Body report in the original proceeding were circulated to Members on 31 March 2011 and 12 March 2012, respectively. The DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report, on 23 March 2012.2
1.3.
In its report, as modified by the Appellate Body report, the original panel found that certain measures of the United States, including measures adopted at a sub-federal level, constituted specific subsidies to the U.S. large civil aircraft (LCA) industry3 and were inconsistent with the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
1.4.
First, the panel found that certain tax exemptions and tax exclusions provided to Boeing under the Foreign Sales Corporation (FSC) legislation and the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI), including the transition and grandfather provisions of the ETI Act and the American Jobs Creation Act of 2004 (AJCA), were prohibited export subsidies under Articles 3.1(a) and 3.2 of the SCM Agreement.4 This finding was not appealed.
1.5.
Second, the panel and the Appellate Body found that the following measures were inconsistent with Articles 5(c) and 6 of the SCM Agreement:

a. payments provided to Boeing by the National Aeronautics and Space Administration (NASA) pursuant to procurement contracts entered into under eight aeronautics research and development (R&D) programmes and access to facilities, equipment, and employees provided to Boeing pursuant to procurement contracts and Space Act Agreements entered into under these programmes;

b. payments and access to facilities provided to Boeing by the Department of Defense (DOD) pursuant to assistance instruments entered into under 23 Research, Development, Test and Evaluation (RDT&E) programmes;

c. tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI measures;

d. Washington State Business and Occupation (B&O) tax rate reduction for commercial aircraft and component manufacturers; and

e. property and sales tax abatements related to Industrial Revenue Bonds (IRBs) issued by the City of Wichita, Kansas.

1.6.
These five groups of measures were found to involve specific subsidies, within the meaning of Articles 1 and 2 of the SCM Agreement, and to cause serious prejudice to the interests of the European Communities, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement, as follows:

a. The NASA and DOD aeronautics R&D measures caused serious prejudice, within the meaning of Articles 5(c), 6.3(b), and (c), with respect to the 200-300 seat LCA product market in the form of a threat of displacement and impedance of European Communities' exports in certain third-country markets and significant lost sales.

b. The tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI measures, together with the Washington State B&O tax rate reduction, caused serious prejudice, within the meaning of Articles 5(c) and 6.3(c), with respect to the 100-200 seat LCA product market in the form of significant lost sales.

c. Property and sales tax abatements related to IRBs issued by the City of Wichita, Kansas complemented and supplemented the price effects of the FSC/ETI subsidies and the Washington State B&O tax rate reduction, thereby causing serious prejudice to the interests of the European Communities, within the meaning of Articles 5(c) and 6.3(c), in the 100-200 seat LCA product market in the form of significant lost sales.

1.7.
In relation to the finding that the FSC/ETI measures were prohibited subsidies, within the meaning of Articles 3.1 (a) and 3.2 of the SCM Agreement, the original panel refrained from making a new recommendation under Article 4.7. The panel noted "the conclusion of the Panel in US – FSC (Article 21.5 – EC II), which was upheld by the Appellate Body, that the recommendation made by the panel in the dispute in US – FSC continued to be 'operative'".5
1.8.
In respect of the findings of serious prejudice caused by certain subsidies, the Appellate Body recommended that:

{T}he DSB request the United States to bring its measures, found in this report, and in the panel report as modified by this Report, to be inconsistent with the SCM Agreement, into conformity with its obligations under that Agreement. More specifically, having regard to the recommendation made by the Panel in paragraph 8.9 of its Report and the provisions of Article 7.8 of the SCM Agreement, the Appellate Body recommends that the United States take appropriate steps to remove the adverse effects found to have been caused by its use of subsidies, or to withdraw those subsidies.6

1.9.
On 23 September 2012, the United States provided a notification to the DSB identifying "a number of actions to withdraw the subsidies found to have caused adverse effects or to remove their adverse effects", in light of which the United States considered that it "ha{d} fully complied with the recommendations and rulings of the Dispute Settlement Body in this dispute".7
1.10.
On 25 September 2012, the European Union requested consultations with the United States, explaining that it was of the view that "{t}he actions and events listed by the United States in its 23 September 2012 notification do not withdraw the subsidies or remove their adverse effects, as required by Articles 4.7 and 7.8 of the SCM Agreement" and that "the United States has failed to achieve compliance with the recommendations and rulings of the DSB".8
1.11.
The European Union and the United States held consultations on 10 October 2012, but the consultations failed to resolve the dispute.

1.2 Panel establishment and composition

1.12.
On 11 October 2012, the European Union requested the establishment of a panel "in accordance with Articles 4.4 and 7.4 of the SCM Agreement and Article 21.5 of the DSU", with standard terms of reference.9 At its meeting on 23 October 2012, the DSB referred this dispute to the original panel, if possible, in accordance with Article 21.5 of the DSU.10
1.13.
The Panel's terms of reference are the following:

To examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, the matter referred to the DSB by the European Union in document WT/DS353/18 and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements.

1.14.
In accordance with Article 21.5 of the DSU, the Panel was composed on 30 October 2012 as follows11:

Chairperson: Mr Crawford Falconer

Members: Mr Francisco Orrego Vicuña

Mr Virachai Plasai

1.15.
Australia, Brazil, Canada, China, Japan, Korea, and Russia notified their interest in participating in the Panel proceedings as third parties.

1.3 Panel proceedings

1.3.1 General

1.16.
The Panel held an organizational meeting with the parties on 2 November 2012.
1.17.
After consultation with the parties, the Panel adopted its Working Procedures12 on 18 December 2012 and timetable on 14 January 2013. The Panel revised its timetable on 12 April 2013 and 4 July 2013. The Panel made additional modifications to its timetable over the course of the proceeding.
1.18.
At the request of the parties and after consulting them, the Panel adopted Additional Procedures to Protect Business Confidential Information and Highly Sensitive Business Information (BCI/HSBI Procedures) on 18 December 2012.13
1.19.
The European Union and the United States filed their first written submissions on 28 March 2013 and 27 June 2013, respectively and their second written submissions on 25 July 2013 and 22 August 2013, respectively. Brazil, Canada, Japan, and Korea as third parties filed written submissions on 23 July 2013.14
1.21.
In addition to the questions that the Panel had posed in December 2012 at the request of the parties that the Panel seek information under Article 13 of the DSU17, the Panel posed questions to the parties and third parties on 7 November 2013 and additional questions to the parties on 4 November 2014 and 17 September 2015.
1.22.
On 11 August 2016, the Panel issued the descriptive part of its Report to the parties. The Panel issued its Interim Report to the parties on 16 September 2016. The Panel issued its Final Report to the parties on 20 December 2016.

1.3.2 The Panel's ruling and decisions regarding Annex V of the SCM Agreement and requests of the parties that the Panel seek information under Article 13 of the DSU

1.23.
On 31 October 2012, eight days after the DSB established the Panel, the European Union filed a preliminary ruling request18 asking the Panel to rule that the conditions for the automatic initiation of an information-gathering procedure under Annex V of the SCM Agreement had been met in this case and that, consequently, automatic initiation of an Annex V procedure had occurred, was deemed to have occurred or should have occurred. The European Union also requested the Panel to exercise its right under Article 13 of the DSU to seek certain information by posing to the United States questions that the European Union had prepared for submission under Annex V of the SCM Agreement that it considered necessary for the Panel to carry out its mandate.
1.24.
In a submission filed on 8 November 201219, the United States disputed the European Union's interpretation of the provisions of the SCM Agreement relating to the initiation of procedures under Annex V and requested the Panel to reject the European Union's request regarding the initiation of procedures under Annex V. While the United States agreed with the European Union that there were unique reasons that would justify the Panel seeking information from the parties at an early point in the proceeding, the United States expressed its disagreement with the European Union regarding the timing, manner and extent to which the Panel should exercise its authority to seek information pursuant to Article 13 of the DSU.
1.25.
On 15 November 2012, the Panel advised the parties that it would exercise its authority under Article 13 of the DSU to seek information from the United States, and that it would communicate the rationale for that decision and the modalities that the Panel intended to apply, in the near future.20 The Panel also invited the United States to submit any specific comments on the questions proposed by the European Union. On 19 November 2012, in partial response to the Panel's invitation, the United States requested the Panel to seek information from the European Union pursuant to Article 13 of the DSU in order to assist the Panel with its examination of the matter before it.21
1.26.
Regarding the European Union's request of 31 October 2012, and after hearing the views of both parties22, the Panel issued a communication to the parties and third parties on 26 November 2012,finding that Annex V procedures were available in compliance proceedings, the conditions for initiating an Annex V procedure had been met, and automatic initiation of an Annex V procedure had occurred.23 The Panel also noted that, while the European Union considered it was entitled to proceed with an Annex V procedure, the European Union had requested the Panel to seek information through an early exercise of its authority under Article 13 of the DSU. The Panel recalled that it had requested the United States to comment on the questions suggested by the European Union and indicated that it would make an information request to the United States under Article 13 of the DSU "as soon as possible taking into account the requests and comments made and responses received".24 Regarding the United States' request that the Panel seek information from the European Union pursuant to Article 13 of the DSU, the Panel further indicated that it would make an information request to the European Union under Article 13 of the DSU, "as soon as possible taking into account the request and any comments received".25
1.27.
After receiving the comments of the parties on the questions that each party proposed the Panel ask the other party in exercise of the Panel's authority to seek information under Article 13 of the DSU, the Panel posed questions to the United States on 5 December and 18 December 2012, and to the European Union on 18 December 2012.26 Following requests for extensions of time to respond to certain of the Panel's requests for information, the United States provided its responses to the questions posed by the Panel pursuant to Article 13 of the DSU on 25 January 2013, 1, 14, and 28 February, 22 March, and 2 May 2013.27 The European Union provided its responses to the questions posed by the Panel pursuant to Article 13 of the DSU on 28 February 2013.
1.28.
By letters dated 19, 20, and 21 December 2012, Brazil, Australia, and Canada respectively, as third parties to this dispute, noted that they were initially not made aware of a request by the European Union for a preliminary ruling regarding the interpretation of provisions relating to the initiation of procedures under Annex V of the SCM Agreement, and of requests by both the European Union and the United States for the Panel to exercise its right to seek information under Article 13 of the DSU. On 25 January 2013, the Panel issued a communication to the parties and third parties requesting the parties to serve upon the third parties their relevant submissions concerning the European Union's request for a preliminary ruling in regard to Annex V, to the extent that they had not already done so, on the grounds that these submissions could properly be considered to be "submissions", within the meaning of Article 10.3 of the DSU.28 The Panel further considered that, in the circumstances of the present requests for information pursuant to Article 13 of the DSU, the communications concerning these requests and the parties' responses to the requests, were not "submissions" which the third parties were entitled to receive pursuant to Article 10.3 of the DSU. However, given the close link between the particular Article 13 requests and issues concerning the interpretation and application of Annex V of the SCM Agreement, the Panel considered it appropriate in this situation that the communications concerning the Article 13 requests (but not the parties' responses to those requests) be provided to the third parties. Accordingly, the Panel served upon the third parties the information requests that it had made to the United States and the European Union pursuant to Article 13 of the DSU.

1.3.3 Requests for preliminary rulings on the Panel's terms of reference and other procedural rulings

1.3.3.1 The United States' request for preliminary rulings

1.29.
On 13 November 2012, the United States submitted a request for preliminary rulings, objecting to the inclusion of certain claims and challenged measures as outside the Panel's terms of reference. The parties exchanged views on the merits of this request in a number of submissions, including their first and second written submissions.29 The Panel addresses the issues raised by this request of the United States in Section 7 of this Report.

1.3.3.2 The European Union's request for leave to file an additional submission pertaining to Washington State Legislature Substitute Bill 5952

1.30.
On 4 March 2014, the European Union requested leave from the Panel to file an additional submission detailing "the legal ramifications of the 2013 amendments to the Washington State measure".30 The European Union asserted that these 2013 amendments (Washington State Senate Bill 5952 (SSB 5952)) constitute "additional measures taken to comply by the United States"31 that are properly within the scope of this proceeding. In a letter dated 21 March 2014, the United States requested the Panel to deny the European Union's request to file an additional submission, as inconsistent with the requirements of Article 6.2 of the DSU and the Panel's Working Procedures. The European Union responded on 31 March 2014, requesting that the Panel proceed to consider the substance of its arguments. On 9 April 2014, the United States reiterated its request that the Panel disregard the European Union's request.32
1.31.
In a communication to the parties dated 27 May 2014, the Panel advised that it had decided to decline the European Union's request and indicated that it would issue the reasons underlying its decision in due course. On 18 September 2014, the Panel issued to the parties its Reasons for Declining the European Union's Request for Leave to File an Additional Submission Regarding SSB 5952. These reasons as issued on 18 September 2014 are reproduced in Section 7.7 of this Report.

1.3.3.3 Other procedural rulings

1.32.
On 23 October 2013, the Panel issued an additional ruling regarding renewed requests from the European Union for additional information in connection with certain NASA and DOD contracts, NASA, DOD, and FAA technical reports, NASA new technology reports, and documents related to certain sales campaigns.33

2 Parties' requests for findings and recommendations

2.1.
The European Union requests that the Panel find that the United States has failed to implement the DSB recommendations in US – Large Civil Aircraft (2nd complaint) towithdraw the subsidies or take appropriate steps to remove the adverse effects, pursuant to Article 7.8 of the SCM Agreement.
2.2.
In particular, the European Union requests that the Panel find that:

a. subsequent to the end of the implementation period, the United States grants or maintains the subsidies to the U.S. LCA industry through the following programmes and measures:

i. NASA aeronautics R&D measures;

ii. the Federal Aviation Administration's Continuous Lower Energy Emissions, and Noise Program (FAA CLEEN);

iii. the DOD RDT&E Program;

iv. income tax exemptions/exclusions pursuant to FSC/ETI legislation and successor acts;

v. property and sales tax concessions for LCA component production facilities associated with IRBs issued by the City of Wichita;

vi. certain tax and other measures applied by the State of Washington and municipalities therein; and

vii. measures applied by the State of South Carolina and municipalities therein in the context of "Project Gemini" and "Project Emerald" as well as "Phase II";

b. each of these subsidies is also inconsistent with Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreementand Article III of the GATT 199434; and

c. the subsidies collectively cause present adverse effects to LCA-related interests of the European Union, in violation of Article 5 of the SCM Agreement. In particular, the subsidies are a genuine and substantial cause of:

i. displacement and impedance, or threat thereof, in the LCA product markets of the United States, within the meaning of Article 6.3(a) and footnote 13 of the SCM Agreement;

ii. displacement and impedance, or threat thereof, in the LCA product markets of several third countries, within the meaning of Article 6.3(b) and footnote 13 of the SCM Agreement;

iii. significant price suppression, or threat thereof, in the LCA product markets, within the meaning of Article 6.3(c) and footnote 13 of the SCM Agreement; and

iv. significant lost sales, or threat thereof, in the LCA product markets, within the meaning of Article 6.3(c) and footnote 13 of the SCM Agreement.

2.3.
The European Union requests that the Panel make "appropriate consequential recommendations".35
2.4.
The United States requests the Panel to reject all claims of the European Union. The United States also requests that the Panel rule that certain claims are outside the Panel's terms of reference or otherwise outside the scope of this proceeding.36

3 Arguments of the parties

3.1.
The arguments of the parties are reflected in their executive summaries, provided to the Panel in accordance with paragraph 12 of the Working Procedures adopted by the Panel (see Annexes B-1 to B-4 and C-1 to C-3).

4 Arguments of the third parties

4.1.
The arguments of Brazil, Canada, Japan, and Korea are reflected in their executive summaries, provided in accordance with paragraph 12 of the Working Procedures adopted by the Panel (see Annexes D-1 to D-8).

5 Interim review

5.1 Introduction

5.2.
The Panel explains below its responses to issues of a substantive nature raised by the parties in their requests for review of precise aspects of the Interim Report. The Panel has also corrected a number of typographical and other non-substantive errors throughout the Interim Report, including those identified by the parties, which are not specifically referred to below. More specifically, the Panel has corrected stylistic and grammatical errors and errors in references to submissions and exhibits. The Panel has also corrected inconsistencies in terminology and has made changes to improve the clarity and accuracy of the Report. In addition, the Panel has added references to dispute settlement reports that were circulated subsequent to the date of issuance of the Interim Report to the parties.
5.3.
Due to changes as a result of our review, the numbering of the footnotes and certain of the paragraphs in the Final Report has changed from the Interim Report. The text below refers to the footnote and paragraph numbers in the Interim Report, with the corresponding footnote numbers, and where applicable, paragraph numbers, in the Final Report provided in parentheses for ease of reference.

5.2 Specific requests for review submitted by the parties

5.2.1 Explicit attributions of arguments to the parties

5.4.
The Panel has, in various places throughout the Interim Report, omitted explicit attribution of an argument to the United States or the European Union, as the case may be, where it considered the context made the attribution clear, albeit implicitly.
5.5.
The European Union has requested a number of modifications to descriptions of the parties' arguments to explicitly attribute the argument to a party and thereby remove the possibility that the particular argument could be misunderstood as a finding of the Panel. The United States does not object to the omission of attributions to the parties where the argument in question occurs in a section labelled "main arguments of the parties" or "main arguments of the parties and third parties", as the context makes clear that the text summarizes arguments by one of the parties and the omission of attributions improves the readability of the Interim Report.37 With respect to the requested specific attribution to the United States of an argument described in the sixth sentence of paragraph 8.1002 of the Interim Report (now paragraph 8.1006), which appears in an "Evaluation" section, the United States considers that the context of the sentence and the existence of a footnote citing a U.S. submission as the source of the statements in the sentence would lead an alert reader to understand that the statement was not a finding of the Panel. However, the United States does not oppose the insertion of a textual attribution of that sentence to the United States, for the avoidance of doubt.
5.6.
The Panel has decided to grant the European Union's requests to explicitly attribute arguments to the parties, even where those arguments appear in a section labelled as "main arguments of the parties" or "main arguments of the parties and third parties". While specific attributions make the text longer, the Panel has concluded that it is important to ensure that the reader clearly understands when an argument or assertion is that of a party, and when it is a legal or factual finding of the Panel. The Panel adds that in acceding to the European Union's requests for specific attributions of arguments to parties, even within sections clearly labelled as "main arguments of the parties" or "main arguments of the parties and third parties", it does not thereby suggest that arguments within those sections that are not specifically attributed to a party are findings of the Panel.

5.2.2 Introduction to Panel findings

Paragraph 6.21

5.7.
The European Union requests that the Panel replace the word "subsidies" with "the subsidy" in the second sentence of paragraph 6.21, and that the words "from any subsidies that are not withdrawn" be added to the end of the same sentence, for the sake of clarity. The United States did not respond specifically to this aspect of the European Union's comment.
5.8.
The Panel has modified the second sentence of paragraph 6.21 as requested by the European Union.
5.9.
The European Union further requests that its position as to ways in which an implementing Member may achieve withdrawal of a subsidy be more comprehensively reflected in paragraph 6.21, specifically by adding the following sentence between the second and third sentences of that paragraph: "The European Union argues that the withdrawal of a subsidy can be achieved through the repayment of the financial contribution or the removal of the benefit." In support of this request, the European Union asserts that its position in the present dispute, consistent with its position in EC and certain member States – Large Civil Aircraft, has been that the withdrawal of a subsidy can be achieved through the removal of one or two constituent elements of the subsidy; i.e. the financial contribution or the benefit. In this regard, the European Union explains that repayment of the financial contribution, unlike refraining from providing an additional financial contribution, would achieve withdrawal of the subsidy. The European Union asserts that its position is that there is no "obligation" on an implementing Member to seek or secure repayment of a financial contribution; it is but one option available to a Member choosing to achieve compliance by withdrawing the subsidy, rather than by removing the adverse effects. The European Union asserts that "consistent with this position", it has argued in its submissions that, for each instance of a subsidy that had not been withdrawn, there continued to be both a (non-repaid) financial contribution and a benefit.38
5.10.
The United States requests the Panel to reject this aspect of the European Union's comment regarding paragraph 6.21 as the Panel's summary as currently drafted reflects the actual arguments and positions taken by the European Union and the interim review stage is not the appropriate stage for the European Union to recast its arguments. The United States argues that the European Union fails to provide a citation to support its assertion that its position in the present dispute has been that the withdrawal of a subsidy can be achieved through the removal of the financial contribution or benefit. The United States notes that the European Union points instead to paragraphs in its first written submission arguing for the existence of a financial contribution and benefit for a variety of measures. The United States considers that the existence of such arguments in no way communicates the overarching position that the European Union now seeks to assert. Moreover, the United States asserts that it is not aware of anywhere else in the European Union's submissions where the European Union summarizes its argument in the way in which it now requests the argument to be reflected.
5.11.
While the Panel has carefully reviewed the relevant passages of the European Union's first written submission cited by the European Union in support of its request, it appears that they do not contain the specific statement that the European Union proposes to be added to paragraph 6.21 of the Interim Report. Significantly, the European Union itself does not provide a specific citation to particular paragraphs of its submissions that explicitly set out the idea that "the withdrawal of a subsidy can be achieved through the repayment of the financial contribution or the removal of the benefit". The Panel is therefore not persuaded that the addition proposed by the European Union is warranted to provide a more "comprehensive" description of the position of the European Union in this proceeding with regard to the interpretation of the term "withdraw the subsidy". The Panel thus declines the European Union's request.

Paragraph 6.37

5.12.
The European Union requests the Panel to remove footnote 80, as the associated sentence in paragraph 6.37 (i.e. the fourth sentence of paragraph 6.37), in stating that the European Union does not argue that the United States was obligated under Article 7.8 of the SCM Agreement to seek repayment from Boeing of subsidies granted in the past, already fully and accurately reflects the views of the European Union on whether the payment of royalties should occur on a retroactive basis. The United States responds that it has no objection to the European Union's request.
5.13.
The Panel has removed the footnote in question as requested by the European Union.

5.2.3 Whether certain measures and claims are outside the Panel's terms of reference or are otherwise outside the scope of this proceeding

Paragraph 7.44

5.14.
The European Union requests the Panel to add a footnote defining the terms "tied subsidy" and "untied subsidy" in paragraph 7.44. The European Union suggests that the Panel either reproduce the explanation of "tied subsidy" in paragraph 9.71 as a footnote to paragraph 7.44 or add a cross-reference, in paragraph 7.44, to paragraph 9.71. The United States has no objection to either of the alternative proposals advanced by the European Union.
5.15.
The Panel has added a footnote to paragraph 7.44 (footnote 146) to explain the concepts "untied" subsidy and "tied" subsidy as used in this proceeding.

Paragraph 7.127

5.16.
The European Union requests that the Panel replace the words "{a}fter some reflection" at the beginning of the second sentence of paragraph 7,127 with the words "{a}fter considering the circumstances described above" to clarify the basis for the Panel's conclusion.
5.17.
The United States objects to the European Union's proposal, because it sees no reason to limit the basis for the Panel's conclusion to "circumstances" described in the preceding paragraphs when, according to the United States, much of that discussion consists of a legal analysis of the Appellate Body's findings and citations to past reports.
5.18.
Given the circumstances described in paragraph 7,128 of the Interim Report, the Panel considers it most appropriate to retain the current language of the second sentence of paragraph 7,127. The Panel thus declines the European Union's request.

Paragraph 7.198

5.19.
The United States suggests that the Panel could consider referring in paragraph 7,198 to the nature of R&D under systems acquisition/military aircraft program elements in Sections 8.2.3.2.4 and 8.2.3.3.3 of the Interim Report. The European Union has no comment on the United States' request.
5.20.
The Panel has added additional references in a footnote to the first sentence of paragraph 7,198 which it considers reflect the United States' suggestion.

Paragraph 7.244

5.21.
The European Union requests that the Panel delete the first sentence of paragraph 7,244 on the basis that this sentence does not appear to add anything new to the paragraph and the Panel's analysis would be clearer without it.
5.22.
The United States objects to the European Union's suggestion. According to the United States, the first sentence of paragraph 7,244 indicates that the Panel does not consider it necessary to conduct the analysis described in paragraph 7,243 (namely, to identify and properly delineate the DOD aeronautics R&D measures that are within the Panel's terms of reference according to the Panel's evaluation of the potential for the R&D to lead to civil applications). The United States considers that the statement in the first sentence of paragraph 7,244 makes explicit the Panel's conclusion on the terms of reference issue that it raised, and as such, adds clarity to the discussion in paragraph 7,244.
5.23.
The Panel has removed the first sentence of paragraph 7,244, as requested by the European Union, in order to improve the clarity of this paragraph.

Paragraphs 7.251, 7.283, 7.284 (and 8.505)

5.24.
The United States requests the Panel to delete references in paragraphs 7,251, 7,283, 7,284, 7,289 (and 8,505) suggesting that Boeing has responsibility for managing the entire FAA CLEEN Program, rather than simply its activities under the Boeing CLEEN Agreement. The United States considers that the suggestion that Boeing has responsibility for managing the FAA CLEEN Program is incorrect. The United States asserts that Boeing does not manage the FAA CLEEN Program. Rather, as explained by the United States in its submissions, the FAA CLEEN Program is managed by the FAA on the basis of Other Transaction Agreements entered into with industry partners. The United States explains that the statement in the Boeing CLEEN Agreement referring to integrated programme management pertains to Boeing's management of its own performance under the Boeing CLEEN Agreement.
5.25.
The European Union objects to the United States' request and asks that the Panel leave undisturbed the existing language related to Boeing's integrated management of the FAA CLEEN Program in paragraphs 7,251, 7,283, 7,284 (and 8,505). The European Union argues that the text of the Boeing CLEEN Agreement plainly provides that the Boeing team will manage the overall FAA CLEEN Program to ensure completion of all required elements in the program statement of work, and repeatedly references "Boeing's Integrated Program Management" as a work element in addition to, and distinct from, identified R&D activities. The European Union notes that these are the portions of the Boeing CLEEN Agreement upon which the Panel relies when it states, in paragraph 7,251, that Boeing is responsible for integrated management of the FAA CLEEN Program as well as two categories of R&D activities. The European Union considers that the Panel's characterization of Boeing's integrated management of the FAA CLEEN Program, including in the paragraphs identified by the United States in its request, is no different from the characterization in the Boeing CLEEN Agreement, and is simply a restatement of the language used in the Boeing CLEEN Agreement itself. Finally, the European Union argues that the United States' argument that the statement referencing integrated program management in the Boeing CLEEN Agreement pertains to Boeing's management of its own performance under the Boeing CLEEN Agreement finds no support in the text of the Agreement, which unambiguously refers to Boeing's management of the "overall CLEEN program", nor does the United States cite to any portion of the Boeing CLEEN Agreement or to any other evidence before the Panel, to support its conclusion.
5.26.
In addressing the United States' request, the Panel has again reviewed the evidence before it regarding the FAA CLEEN Program and the Boeing CLEEN Agreement. Section C.3 of the Boeing CLEEN Agreement sets forth the work to be performed by Boeing. The "Overview" subsection to section C.3 explains that Boeing will increase the technology readiness level of three technologies as part of the FAA CLEEN Program. These are: (a) CMC/Oxide-Oxide Nozzle Technology; (b) Adaptive Trailing Edges (excluding Flaplets); and (c) Alternative Fuels – Aromatics and Seal Swell. The Overview also refers to "overall Integrated Program Management and Flight demonstration(s)".
5.27.
The next subsection to section C.3 of the Boeing CLEEN Agreement is entitled "Integrated Program Management and Technology Demonstrations". A further subheading to this subsection, entitled "Integrated Program Management", states that the "Boeing team will manage the overall CLEEN program to ensure completion of all required elements in the program SOW". A second subheading to this subsection is entitled "Technology Demonstration Tests". This subheading describes flight test demonstrations that Boeing will conduct "as part of the technology maturation program" in 2012 and 2013, respectively. In each case, "Boeing will conduct integrated program management, design, and safety reviews to ensure the technologies integrate onto the selected demonstration airplane, and to ensure compliance with required procedures and safety of flight."
5.28.
There are three further subsections to section C.3 of the Boeing CLEEN Agreement. These deal with: (a) CMC/Oxide-Oxide Acoustic Nozzle Technology; (b) Adaptable Trailing Edge Technology; and (c) Alternative Fuels – Aromatics, Seals Technology. For each of these technology areas, there are separate subheadings that discuss "project management", "technology maturation", "systems engineering and integration", "technology demonstration tests", and "technology assessments". The Boeing CLEEN Agreement plainly states that "Boeing will manage the overall CLEEN program to ensure completion of all required elements in the program SOW".39 This statement is made in a distinct subsection of section C.3 that refers to "integrated program management". Moreover, the concept of integrated program management appears to be distinct from the "program management" envisaged for each of the three technology areas and discussed elsewhere in section C.3.
5.29.
The United States considers that the references to integrated program management pertain to Boeing's management of its own performance under the Boeing CLEEN Agreement. We do not discount the possibility that the "Integrated Program Management and Technology Demonstrations" work that is described in section C.3 of the Boeing CLEEN Agreement, understood in its proper context, in fact concerns the management of those aspects of the FAA CLEEN Program for which Boeing is the main contractor, and does not extend to management of the activities of the other FAA CLEEN main contractors under the FAA CLEEN Program (i.e. General Electric, Honeywell, Pratt & Whitney, and Rolls-Royce North America). However, the United States did not attempt such an explanation in its submissions and does not fully explain the basis for this position in its comments on precise aspects of the Interim Report. Indeed, the European Union, in its first written submission, asserted that "Boeing (the only aircraft producer in the CLEEN consortium) is responsible for integrated management of the entire CLEEN Program, allowing Boeing to benefit from FAA funding of other participants, all of whom are Boeing suppliers."40 The European Union cited to section C.3 of the Boeing CLEEN Agreement in support of this assertion. The United States did not refute this assertion in its submissions.41
5.30.
We consider that the Panel's interpretation of the Boeing CLEEN Agreement is reasonable on its face, and is not contradicted by other evidence before it, or by the United States in its submissions, despite the fact that the European Union, in its first written submission, made the very assertion to which the United States now objects. In light of these factors, we have decided to leave undisturbed the existing language related to Boeing's integrated management of the FAA CLEEN Program in paragraphs 7,251, 7,283, 7,284, 7,289, (and 8,505).

Paragraph 7.409

5.31.
The United States requests the Panel to modify the first sentence of paragraph 7,409 referring to the European Union's argument that the Panel describes in paragraph 7,409 as relating to a "change in WTO law resulting from an intervening Appellate Body report" to clarify that the European Union's argument concerns a purported "clarification of relevant WTO law" and thus a "subsequent interpretation" of the WTO agreements, as opposed to a change in WTO law itself. The United States notes that the DSU provides that the findings and recommendations of panels and the Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements. Moreover, the United States does not understand the European Union to argue, in paragraph 7,390 (d) of the Interim Report, that WTO law has actually changed, but rather that the interpretation of WTO law has changed.
5.32.
The European Union objects to the United States' request and requests that the Panel retain the current wording of paragraph 7,409. While the European Union does not disagree with the assertion that a report of the Appellate Body does not add to or diminish the rights and obligations provided in the covered agreements, it does not share the United States' concern that the current language in paragraph 7,409 would imply otherwise. The European Union considers that the Panel uses the phrase "a change in WTO law as a result of an intervening Appellate Body report" as a convenient way of referring to a scenario in which an Appellate Body report identifies, from the terms of a provision in the covered agreements, a meaning that is different from the one that was previously understood. In fact, the European Union regards the Panel's current formulation as the most appropriate one to describe the situation referenced, so as to achieve precision and clarity, and considers that the United States' proposed alternative formulation falls short in this regard. More specifically, the European Union argues that the United States' suggested formulation of "subsequent interpretation" conveys only a temporal relationship between two interpretations, while in the current circumstances, the relevant issue is that the subsequent interpretation is different from the earlier interpretation, not that it is "subsequent".
5.33.
The Panel has modified the first sentence of paragraph 7,409 to more closely reflect the terms used by the European Union in making the argument in question in paragraphs 68-74 of its second written submission, which refers to a "clarification of relevant WTO law to be applied by the compliance panel", rather than a "change in WTO law resulting from an intervening Appellate Body report".

5.2.4 Whether the United States has failed to withdraw the subsidy within the meaning of Article 7.8 of the SCM Agreement

Subsection 8.1.2

5.34.
The European Union requests the Panel, in its summary of the European Union's arguments, to set forth the European Union's position on patent ownership in situations where inventions are jointly made by NASA or DOD employees on the one hand, and Boeing employees on the other, in the same manner as the Panel summarized the United States' position on this issue in paragraph 8.20. The European Union considers that in its submissions it explains why, even in a situation where inventions arrived at by NASA or DOD employees jointly with a private contractor's employees, the private contractor may ultimately be provided with something more than an undivided share in rights under the patent. The European Union refers in this regard to its comments on the United States' response to Panel question No. 85, at paragraphs 217-221 and the European Union's opening statement, at paragraph 31. The European Union additionally requests that the Panel consider whether the European Union's position on patent ownership in the joint inventorship situation requires any modifications to paragraph 8.34(c) of the Interim Report.
5.35.
The United States objects to the European Union's requests. The United States considers that granting the European Union's request to modify the summary of the European Union's arguments would deprive the United States of an opportunity to comment on the accuracy of the summary, or suggest relevant additions to the summary of the U.S. argument. Moreover, the United States considers that at this stage, the European Union (rather than the Panel) bears the responsibility for suggesting how the Panel should modify summaries of the European Union's own arguments. The United States also objects to the European Union's request to consider whether the referenced arguments of the European Union require a modification to the Panel's finding in paragraph 8.34(c) of the Interim Report. The United States notes that paragraph 8.34(c) is part of subsection 8.1.3.1 which covers "The allocation of intellectual property rights and data rights under NASA procurement contracts and under DOD assistance instruments and procurement contracts". The United States argues that the arguments referenced by the European Union, however, deal with the possibility that the United States might licence its joint rights to the contractor subsequent to the contract. Thus, according to the United States, such assertions have nothing to do with the allocation of rights under R&D contracts. Moreover, the United States adds that the European Union has not pointed to any procurement contract or assistance instrument that licences the government ownership of joint inventions to the contractor.
5.36.
The Panel considers that it has, in the summary of the European Union's arguments, set forth the European Union's position on patent ownership in situations where inventions are jointly made by NASA or DOD employees on the one hand, and Boeing employees on the other, in the same manner as the Panel has set forth in paragraph 8.20 the United States' position on this issue in its summary of the United States' arguments. Specifically, in paragraph 8.12 of the Interim Report, the Panel recounts the European Union's argument, from paragraph 309 of its second written submission, that under the NASA procurement contracts and agreements and the DOD assistance instruments, inventions made jointly between NASA and Boeing or DOD and Boeing are owned solely by Boeing as the commissioned party. The European Union requests that the Panel reflect paragraphs from the European Union's submissions explaining why, even where inventions are jointly made by NASA or DOD employees, and by Boeing employees, during the course of work under an R&D contract, the private contractor may ultimately be provided with something more than an undivided share in the rights under the patent.
5.37.
The Panel considers that the arguments made by the European Union in the paragraphs of its submissions to which it refers address, not the issue of how patent ownership is allocated in cases of such joint inventorship by NASA/DOD and Boeing employees under R&D contracts as a matter of U.S. law, but a different issue; namely that, notwithstanding the formal ownership rights that the U.S. Government receives in such situations, the situation is similar to cases of sole inventorship by Boeing employees as a practical matter.42
5.38.
Paragraph 8.34 of the Interim Report sets forth the Panel's conclusions regarding the allocation of patent rights, by operation of U.S. law, under NASA procurement contracts and cooperative agreements and under DOD assistance instruments and procurement contracts, including in subparagraph (c), in the situation where a NASA or DOD employee and a Boeing employee jointly make an invention in the course of work under a NASA procurement contract or cooperative agreement, or under a DOD assistance instrument or procurement contract, as the case may be. The Panel has reflected the arguments of the parties on this particular issue in paragraphs 8.12 and 8.20 of the Interim Report, and has reached its own conclusion in paragraph 8.34(c), which it sees no need to modify.
5.39.
In light of the foregoing, the Panel declines to make the modification requested by the European Union.

Footnote 943 (now footnote 959) to paragraph 8.20

5.40.
The European Union requests the Panel to remove the reference to United States Code of Federal Regulations, chapter 37, section 501.6, (Exhibit USA-310) in footnote 943 to paragraph 8.20 (now footnote 959). The European Union notes that the cited U.S. federal regulation relates to inventions made solely by government employees, and not to inventions made jointly by government employees and contractors like Boeing. The European Union additionally requests the Panel to clarify that the proposition that, under U.S. law, the U.S. Government takes title and interest in inventions jointly made by DOD employees and by private contractors reflects an argument of the United States, and is not a finding by the Panel.
5.41.
The United States disputes the European Union's understanding of United States Code of Federal Regulations, chapter 37, section 501.6 as being limited to situations in which the government employee is the sole inventor of an invention. The United States refers to its submissions, wherein it explains that in situations where inventions are jointly made by NASA or DOD employees on the one hand, and by Boeing employees on the other, the respective laws and regulations governing invention by a government employee and by a contractor employee operate in parallel. Thus, according to the United States, the citation to United States Code of Federal Regulations, chapter 37, section 501.6 is correct, as that regulation gives the U.S. Government ownership of a patent issued for an invention made by a government employee as part of the employee's work, even where another person is a co-inventor. The United States suggests, for the sake of completeness and to address the European Union's concern, that the Panel could consider citing Inventions Patentable, United States Code, chapter 35 section 101, (Exhibit USA-466) and the Bayh-Dole Act and various related measures, as support for its findings regarding the situation where inventions are jointly made by NASA or DOD employees on the one hand, and Boeing employees on the other.
5.42.
The Panel has revised footnote 943 (now footnote 959) to paragraph 8.20 to clarify that the assertions that, under U.S. law, NASA and DOD obtain ownership over inventions made solely by their employees during work under a procurement contract or assistance instrument, and joint ownership over inventions made jointly with Boeing employees, is part of a U.S. argument.

Footnote 964 (now footnote 980) to paragraph 8.33

5.43.
The United States requests the Panel to add a sentence to footnote 964 (now footnote 980) to clarify, as the original panel had at footnote 2913 of its report, that the Bayh-Dole Act supersedes the National Aeronautics and Space Act of 1958, as amended (Space Act) with respect to title to inventions made pursuant to NASA procurement contracts with non-profit organizations and small businesses, which are governed by separate regulations and contract clauses. The European Union does not make any comment regarding the United States' request.
5.44.
The Panel has made the modification to footnote 964 (now footnote 980) requested by the United States.

Paragraph 8.120

5.45.
The European Union requests the Panel to add a reference to the block quote at the end of the paragraph, which it suggests is NASA, Research Opportunities in Aeronautics – 2008 (ROA‑2008), NASA Research Announcement NNH08ZEA001N, (7 March 2008), as amended (Exhibit USA-61), Appendix A, pp. A1 and A2. The United States has no objection to the proposed citation for this block quotation.
5.46.
The Panel has amended paragraph 8,120 to add a reference to the block quotation at the end of the paragraph on the basis requested by the European Union.

Paragraph 8.189

5.47.
The United States requests the Panel to modify the second-to-last sentence in paragraph 8,189 to remove the suggestion that Boeing receives intellectual property rights and data rights from NASA under Space Act Agreements, in the sense that Space Act Agreements involve the transfer of patent rights from NASA to the other party. The United States notes that the Panel does not undertake an analysis of whether Space Act Agreements involve a transfer of intellectual property rights from NASA to the other party. It therefore suggests that the relevant sentence of paragraph 8,189 be modified to state that Boeing may nevertheless advance its R&D activities and commercial objectives by developing patentable inventions or data subject to copyright, in addition to contributing to NASA's particular mission or programme objectives.
5.48.
The European Union objects to the United States' request and requests that the Panel retain the current wording of paragraph 8,189. The European Union argues that the statement in paragraph 8,189 that Boeing receives valuable intellectual property rights or data rights is not a finding that those rights are transferred by NASA, within the meaning of Article 1.1(a)(1) of the SCM Agreement. The European Union notes that in paragraph 8,158 of the Interim Report, the Panel found it unnecessary to address the European Union's alternative argument that what it refers to as the "transfers" to Boeing of patent and other intellectual property rights could separately be considered a financial contribution. The European Union also notes that in the DOD‑related analysis, at paragraphs 8,388 and 8,389, the Panel considered whether DOD "provides" or "transfers" patents to Boeing pursuant to R&D contracts. The European Union argues that, by contrast, the Panel's reference in paragraph 8,189 to Boeing's receipt of valuable intellectual property rights is not a finding that those rights are transferred to Boeing by NASA, within the meaning of Article 1.1(a)(1). According to the European Union, it is merely an acknowledgement that Boeing receives ownership rights over intellectual property created in the course of working under the Space Act Agreements. The European Union asserts, referring to Articles 27, 29, 32, and 62 of the TRIPS Agreement, that patent rights, in particular, are rights that are granted and revoked under a legal regime put in place by governments.
5.49.
The Panel considers that the European Union's interpretation of the second-to-last sentence of paragraph 8,189 is correct. In other words, in stating that Boeing receives valuable intellectual property rights or data rights, the Panel does not mean to suggest that those rights are "transferred" by NASA in the sense of Article 1.1(a)(1). The Panel considers this is clear from the context of paragraphs 8,158, and 8,388-8.389, as well as paragraph 8,192.
5.50.
However, the Panel has modified the second-to-last sentence of paragraph 8,189 to remove the possibility that the discussion therein could be misinterpreted as suggesting that Boeing receives intellectual property rights and data rights from NASA under Space Act Agreements, in the sense that Space Act Agreements involve the transfer of patent rights from NASA to the other party.

Footnote 1209 (now footnote 1225) to paragraph 8.189

5.51.
The United States requests the Panel to modify the first sentence of footnote 1209 (now footnote 1225) to clarify that NASA has determined that Space Act Agreements are not procurement contracts, agreements, understandings, or other arrangements, within the meaning of section 305(j) of the Space Act. As currently drafted, the United States considers that the first sentence of footnote 1209 (now footnote 1225) could be read to suggest, erroneously, that a Space Act Agreement is not a contract. The European Union does not make any comment on the United States request.
5.52.
The Panel has made the modification requested by the United States.

Paragraph 8.228

5.53.
The United States requests the Panel to modify the last sentence of paragraph 8,228 to clarify that this statement pertains also to other instruments, such as Executive Order 12591 and the NASA waiver regulations, which are not within the scope of the Bayh-Dole Act, its associated legislative instruments and implementing regulations. The European Union does not make any comment on the United States request.
5.54.
The Panel has made the modification requested by the United States.

Paragraph 8.504

5.55.
The United States requests the Panel to delete the reference to NASA in the first sentence of paragraph 8,504. The United States disputes that NASA was involved in the inauguration of the FAA CLEEN Program and argues that the statement that the FAA and NASA inaugurated the FAA CLEEN Program, as currently reflected in paragraph 8,504, is unsupported by the evidence. The United States argues that it has explained in its submissions, and the Panel has recognized in paragraph 7,249 of the Interim Report, that the FAA, not NASA, established the FAA CLEEN Program to accelerate aircraft technology development to reduce fuel burn, emissions and noise of civil subsonic jet aircraft, in partnership with industry through Other Transaction Agreements.
5.56.
The European Union objects to the United States' request and suggests an alternative formulation of the first sentence of paragraph 8,504, along with a conforming modification to paragraph 7,249. More specifically, the European Union refers to a statement at paragraph 7,280 of the Interim Report, on which the United States has not commented, that the FAA CLEEN Program was created in conjunction with the ERA Project of NASA's Integrated Systems Research Program. The European Union refers to confirmation for this statement in statements made by NASA and its representatives, noting in particular the statement of NASA's Associated Administrator to the U.S. Congress that, "{t}o facilitate the transition of advanced ideas and technologies into the aircraft fleet, NASA is partnering with the Federal Aviation Administration's (FAA) Continuous Low Emissions, Energy and Noise (CLEEN) Program to guide efforts to mature technologies that have already shown promise to the point where they can be adopted by the current and future aircraft fleet".43 The European Union argues that, based on the foregoing, the Panel should leave unchanged its existing characterization of the inauguration of the FAA CLEEN Program by the FAA and NASA in paragraph 8,504. However, if the Panel disagrees, the European Union suggests that it could alternatively change the statement that the FAA and NASA inaugurated the FAA CLEEN Program to a statement that the FAA, in conjunction with NASA, inaugurated the FAA CLEEN Program, which it considers to be more closely in line with the Panel's discussion at paragraph 7,280. The European Union further suggests, in order to remove the existing inconsistency identified by the United States between paragraph 8,504 and paragraph 7,249, that the Panel modify paragraph 7,249 to refer to NASA's role in launching the FAA CLEEN Program.
5.57.
The Panel does not consider that there is sufficient support on the record for the modification suggested by the European Union that the FAA in conjunction with NASA, inaugurated the FAA CLEEN Program. The Panel notes that the second sentence of paragraph 7,280 refers to a relationship between the FAA CLEEN Program and NASA's ERA Project, but not necessarily a direct involvement by NASA in inaugurating the FAA CLEEN Program. The Panel has decided to modify paragraph 8,504 by removing the reference to NASA in the first sentence and by adding a cross‑reference to paragraph 7,280 in footnote 1664 (which was footnote 1649 in the Interim Report) to paragraph 8,504.

Paragraph 8.511

5.58.
The United States requests the Panel to correct the second sentence of paragraph 8,511 to reflect the United States' argument, which is that the FAA (as opposed to NASA as currently appears in the second sentence of paragraph 8,511) does not transfer any patent to Boeing. The European Union does not make any comment on the United States' request.
5.59.
The Panel has made the correction requested by the United States.

Paragraph 8.514

5.60.
The United States requests the Panel to delete the second sentence of paragraph 8,514, in which the Panel states that the United States does not dispute that Boeing receives rights to patents and other data rights. The United States argues that this sentence is incorrect, because the United States explicitly disputed the European Union's assertion that the FAA transferred patent and intellectual property rights to Boeing under the FAA CLEEN Program. The European Union does not make any comment on the United States' request.
5.61.
The Panel has made the correction requested by the United States.

Paragraph 8.552

5.62.
The European Union requests the Panel to correct what it considers appear to be typographical errors in the third and fourth sentences of paragraph 8,552; namely, references to the Boeing CLEEN Agreement as opposed to the FAA CLEEN Program.
5.63.
The United States objects to the European Union's request. The United States does not consider that the references to the Boeing CLEEN Agreement in paragraph 8,552 are typographical errors. The United States argues that the Panel frames the question in paragraph 8,546 as being "whether the subsidies provided to Boeing under the Boeing CLEEN Agreement are specific within the meaning of Article 2.1(a) of the SCM Agreement". The United States considers that, as a substantive matter, the specificity analysis of the FAA CLEEN Program should be based on the programme itself, rather than the contractual instrument through which the FAA made payments to Boeing. However, the United States does not consider the Panel's framing of the question or its references to the Boeing CLEEN Agreement at paragraph 8,552 to be inconsistent with this view.
5.64.
The Panel declines the European Union's request because the references in paragraph 8,552 of the Interim Report are not typographical errors. Rather, they reflect that the subsidies at issue which are the subject of the specificity analysis are subsidies resulting from financial contributions provided under the Boeing CLEEN Agreement. Accordingly, the question before us in this Section of the Report is whether "the subsidies provided to Boeing under the Boeing CLEEN Agreement are specific within the meaning of Article 2.1(a) of the SCM Agreement".44 As explained in Section 8.2.8.6.3.3 of this Report, the Panel agrees that the analysis of whether a subsidy provided to an individual recipient is specific must take into account the broader programme in which context the subsidy is provided. However, that does not mean that we should treat that programme itself as the subsidy that is the object of the specificity analysis. In sum, we consider that the references to the Boeing CLEEN Agreement correctly reflect the measure that we find to be a subsidy and in no way prevent us from adequately taking into account, for purposes of the specificity analysis, the context within this measure is applied pursuant to the FAA CLEEN Program.

Paragraphs 8.614, 8.628 (now 8.627), 8.633 (now 8.632), and 8.634 (now 8.633)

5.65.
The European Union requests that the Panel change the references to "IRB" in singular form in a number of places in paragraphs 8,614, 8,628 (now 8,627), 8,633 (now 8,632), and 8,634 (now 8,633) to reflect, consistent with the original panel report and Exhibit EU-419, that multiple IRBs were issued in any given year.
5.66.
The United States agrees that Wichita typically issued more than one IRB per year. However, it considers the Panel's use of the singular to be typically consistent with this understanding and thus sees no need to pluralize "IRB" in the instances identified by the European Union in paragraphs 8,614, 8,628 (now 8,627), and the second through fourth sentences of paragraph 8,633 (now 8,632). In the first and last sentences of paragraph 8,633 (now 8,632), the United States suggests alternative formulations to address the concern raised by the European Union. The United States has no objection to the European Union's proposal regarding paragraph 8,634 (now 8,633).
5.67.
The Panel has modified paragraphs 8,614, 8,628 (now 8,627), 8,633 (now 8,632), and 8,634 (now 8,633) of the Interim Report as requested by the European Union, consistent with the terminology used in the original panel report.

Paragraph 8.787 (now paragraph 8.786)

5.68.
The United States requests the Panel to modify its summary of the United States' argument in the last sentence of paragraph 8,787 (now paragraph 8,786), to reflect the terms on which the argument was made in the United States' submission. The European Union does not make any comment on the United States request.
5.69.
The Panel has made the modification requested by the United States.

Paragraph 8.947 (now paragraph 8.950)

5.70.
The United States requests the Panel to modify the fifth sentence of paragraph 8,947 (now paragraph 8,950), for the sake of clarity and to mirror the text of Article 2.1(c) and the arguments contained in the United States' submissions. The European Union does not make any comment on the United States' request.
5.71.
The Panel has made the modification requested by the United States.

Footnote 2603 to paragraph 8.1050 (now footnote 2614 to paragraph 8.1054)

5.72.
The European Union requests the Panel to modify the description of its argument in its first written submission, at footnote 2603 to paragraph 8.1050 (now footnote 2614 to paragraph 8.1054), to clarify that its discussion of the three sales and use tax exemptions in its first written submission relates to the post-2011 period.
5.73.
The United States considers such modification unnecessary because it is clear that the statement regarding the "three sales and use tax exemptions" refers to the post-2011 period.
5.74.
The Panel has made the modification of footnote 2603 to paragraph 8.1050 (now footnote 2614 to paragraph 8.1054) as requested by the European Union, for the sake of greater clarity.

5.2.5 Whether the United States has failed to take appropriate steps to remove the adverse effects within the meaning of Article 7.8 of the SCM Agreement

Footnote 2646 (now footnote 2657) to paragraph 9.4(a)(iii)

5.75.
The European Union requests the Panel to modify footnote 2646 (now footnote 2657) to clarify that the European Union's arguments and evidence regarding impedance of exports of the A350XWB (and threat thereof) in third-country markets were not limited to Boeing delivery market shares significantly exceeding 50%. The European Union asserts that its arguments and evidence also covered impedance (and threat thereof) based on sales lost in the relevant country markets, and more generally based on the causal mechanisms that the European Union asserted and that it argued indicated higher counterfactual sales volumes and market shares for Airbus, absent the U.S. subsidies. The European Union also requests the Panel to add the word "significantly" before "50%" in footnote 2646 (now footnote 2657) to reflect that the European Union's market share-based argument regarding impedance applied where Boeing's market share significantly exceeds 50%.
5.76.
The United States does not make any comment with respect to the first aspect of the European Union's request. As to the requested modification concerning the insertion of the word "significantly" before 50%, the United States requests that if the Panel were to make the modification, it do so in a manner that clarifies that the European Union asserts that Boeing is projected to make significantly more than 50% of deliveries of the relevant aircraft, so as to avoid giving the impression that a characterization of the market share evidence by the European Union is a fact.
5.77.
The Panel has modified footnote 2646 (now footnote 2657) in the manner requested by the European Union, and consistent with the United States' qualification.

Paragraph 9.11

5.78.
The European Union requests the Panel to modify the second sentence of paragraph 9.11 to more accurately reflect the European Union's arguments that the pre-2007 and certain post-2006 aeronautics R&D subsides affect Boeing's technology development, while the remaining post-2006 subsides affect Boeing's LCA pricing behaviour.
5.79.
The United States does not consider the European Union's requested revision to be inaccurate. However, it notes that the Panel was laying out the general contours of the European Union's causation allegations, which are based on the alleged effects of subsidies on a horizontal basis rather than on the basis of a particular Boeing aircraft alleged to be subsidized. In this context, 2006/2007 serves as the general line of division between the subsidies alleged to cause technology effects and the subsidies alleged to cause price effects. The United States considers that this latter feature could be lost if the European Union's proposed phrasing of "certain post‑2006" subsidies were adopted. The United States therefore proposes a modification to the second sentence of paragraph 9.11 which notes that "generally" the post-2006 subsides affect Boeing's pricing behaviour, with a footnote after the word "generally" to explain that the European Union argues that a relatively small number of post-2006 aeronautics R&D subsidies, like the pre‑2007 aeronautics R&D subsidies, operate through a technology causal mechanism rather than a price causal mechanism, with a citation to paragraphs 9,198 and 9,199 of the Interim Report.
5.80.
The Panel has decided that, given that paragraph 9.11 is part of the "Introduction" and provides only a general explanation of the European Union's arguments, it is preferable at this point in the discussion to refer to the basic distinction that the European Union draws between the effects of the pre-2007 aeronautics R&D subsidies, on the one hand, and those of the post-2006 subsidies (including the majority of the post-2006 aeronautics R&D subsidies), on the other.45 However, it also considers that it is appropriate to add a footnote providing greater detail regarding the European Union's arguments concerning the causal pathway through which certain post-2006 aeronautics R&D subsidies are alleged to operate. The Panel has modified paragraph 9.11 accordingly.

Footnote 2679 (now footnote 2691) in Table 5 of paragraph 9.28

5.81.
The United States requests the Panel to modify footnote 2679 (now footnote 2691) to indicate that it is the European Union's view that the 767, A340, and Original A350 are no longer in any LCA product market. The European Union does not make any comment on the United States request.
5.82.
The Panel has made the modification requested by the United States.

Footnote 2710 (now footnote 2724) to paragraph 9.50

5.83.
The United States requests the Panel to modify footnote 2710 (now footnote 2724) to clarify that the various top tier Boeing customers reportedly obtain the benefits of Boeing's "most‑favoured customer" clause, to avoid giving the impression that the Panel is publicly revealing HSBI information as to the contractual terms extended to any specific Boeing customers. The European Union does not make any comment on the United States request.
5.84.
The Panel has made the modification requested by the United States.

Paragraph 9.51

5.85.
The European Union requests the Panel to delete the last two sentences of paragraph 9.51 because it considers that it is not factually correct that the Panel "does not have before it direct evidence of the airframe prices actually agreed between Boeing and the airline and leasing company customers in any sales campaigns". The European Union refers to the fact that the United States had provided pricing for a number of sales that Boeing had secured, which information the European Union had summarized in an exhibit.46 The European Union also points to the fact that it had provided pricing summaries, in the form of Airbus' business control sheets, associated with final offers Airbus made to potential customers. The European Union notes that the Panel itself discusses pricing information for certain single-aisle sales campaigns, in non‑confidential form in paragraphs 9,385-9.388 and 9,398-9.407 of the Interim Report (now paragraphs 9,382-9.385 and 9,395-9.404), and in confidential form in Appendix 2. Finally, the European Union notes that at paragraph 9,392 (now paragraph 9,389), in Table 13, the Panel includes (in the HSBI version of the Interim Report), average actual 2012 prices of certain Boeing aircraft, derived from information provided by the United States in response to the Panel's request for information pursuant to Article 13 of the DSU.
5.86.
The United States does not object to clarification or deletion of the penultimate sentence of paragraph 9.51, which it considers could be confusing in light of the Panel's surrounding discussion. It also does not view the deletion of the last sentence identified by the European Union as "particularly problematic" as the Report will read coherently without it. However, it considers that the last sentence of paragraph 9.51 is clearly and unambiguously supported by the evidence cited by the Panel.
5.87.
The Panel has modified paragraph 9.51 to delete the second-to-last sentence of that paragraph, and replaced it with the text that previously appeared in footnote 2711.

Paragraph 9.64

5.88.
The European Union requests the Panel to revise the first sentence of paragraph 9.64 to accurately reflect the European Union's argument, which is that all of the post-2006 subsidies, except certain aeronautics R&D subsidies, enable Boeing to lower the prices of its LCA in competitive sales campaigns. The United States has no objection to the European Union's request.
5.89.
The Panel has modified the first sentence of paragraph 9.64 as requested by the European Union. The Panel has added additional references to the European Union's arguments that certain post-2006 aeronautics R&D subsidies, identified in Exhibit EU-1265, presently operate through a technology causal mechanism, while the remainder of the post-2006 aeronautics R&D subsidies operate at present through a price causal mechanism.47 The Panel has also included cross‑references to two conditional alternative arguments made by the European Union in footnote 352 to its response to Panel question No. 43, that should the Panel disagree that certain post-2006 aeronautics R&D subsidies operate, at present, through a technology causal mechanism, alternatively, they operate through a price causal mechanism under so-called "Category 2", and should the Panel disagree with that argument, alternatively, they operate "on a different basis", through a "price effects" causal pathway, as described for so-called "Category 3" subsidies.

Footnote 2834 to paragraph 9.128 (now footnote 2849 to paragraph 9.127)

5.90.
The European Union requests the Panel to delete footnote 2834 to paragraph 9,128 (now footnote 2849 to paragraph 9,127). In footnote 2834 (now footnote 2849), the Panel contrasts the findings in the original proceeding regarding the nature and effects of the aeronautics R&D subsidies with those of the original panel in EC and certain member States – Large Civil Aircraft regarding the nature and effects of certain subsidies at issue in that dispute on Airbus' ability to launch and bring to market various Airbus LCA. The European Union appears to disagree with the Panel's description of the findings of the original panel in EC and certain member States – Large Civil Aircraft and, in any case, argues that the Panel's description is incomplete and unnecessary to the resolution of issues in this proceeding, and therefore should be deleted.
5.91.
The United States objects to the European Union's request. The United States argues that footnote 2834 (now footnote 2849) contrasts the findings in the original dispute with those in EC and certain member States – Large Civil Aircraft in order to illuminate the discussion in paragraph 9,128 (now paragraph 9,127), which includes the statement that the aeronautics R&D subsidies were not found to have brought into existence any technology or product that would not otherwise exist. The United States considers that the comparison with EC and certain member States – Large Civil Aircraft is apt, drawing the distinction between subsidies that accelerate a product's entry into a market and subsidies that enable the very existence of a product. The United States considers that the Panel's characterization of EC and certain member States – Large Civil Aircraft is correct, referring to the statements of the panel in the paragraphs 7.1949 and 7.1993 of the panel report, and of the Appellate Body at paragraphs 1264, 1299 and 1300 of the Appellate Body Report. According to the United States, these statements leave no doubt that footnote 2834 (now footnote 2849) accurately describes the relevant findings in EC and certain member States – Large Civil Aircraft and there is no "nuance" that the Panel fails to capture and no unsettled "matter" from another dispute. Finally, the United States adds that it considers it entirely normal and appropriate for panels to illustrate a point by comparing or contrasting the dispute before it with a prior dispute.
5.92.
The Panel does not consider that the discussion of certain of the causation findings made by the panel and accepted by the Appellate Body in EC and certain member States – Large Civil Aircraft, can be misconstrued as attempting to comprehensively capture all aspects of the adverse effects findings in that dispute. However, the Panel has modified footnote 2834 (now footnote 2849) in order to clarify that this was not the Panel's intention. Rather, the Panel's intention is simply to highlight an important distinction between the "technology effects" findings of the panel in the original proceeding in this dispute, and the findings of the panel in EC and certain member States – Large Civil Aircraft regarding the nature, operation and effects of certain of the subsidies at issue in that dispute, because the difference, as explained in paragraph 9,129 (now paragraph 9,128), is highly relevant to the nature of the counterfactual question that the Panel should pose in determining whether the effects of the pre-2007 aeronautics R&D subsidies have been demonstrated to continue in the post‑implementation period. The Panel therefore declines the European Union's request.

Paragraph 9.157 (now paragraph 9.156)

5.93.
The United States requests the Panel to modify the second sentence of paragraph 9,157 (now paragraph 9,156) to better express the point that the Panel appears to be making, which is that, as the European Union itself observes, the European Union does not argue that, absent the subsidies, the technology in question would never have existed.
5.94.
The European Union agrees with the United States that the second sentence of paragraph 9,157 (now paragraph 9,156) is somewhat difficult to follow and ambiguous. However, it also considers that the United States' proposed alternative formulation is equally difficult to follow. The European Union suggests alternative wording to avoid combining the phrase "as the European Union itself observes" with the phrase "the European Union does not argue that".
5.95.
The Panel has made the requested modification in the terms suggested by the European Union.

Paragraph 9.181 (now paragraphs 9.180 and 9.181)

5.96.
The European Union requests the Panel to clarify whether the discussion that follows the summary of the United States' arguments in the first two sentences of paragraph 9,181 (now paragraph 9,180) is also a summary of U.S. argument, or is intended to frame the Panel's own analysis of the issues raised by the arguments. In the case of the former, the European Union requests the Panel to revise the discussion to clearly indicate that the discussion represents the United States' arguments. In case of the latter, the European Union suggests that the Panel begin a new paragraph that commences from the end of the second sentence of paragraph 9,181 (now paragraph 9,181). The United States has no comment on the European Union's request.
5.97.
The Panel confirms that the final three sentences of paragraph 9,181 of the Interim Report are intended to frame the Panel's analysis of the issues raised by the parties' arguments. We agree with the European Union's suggestion that, for the sake of clarity, it is preferable for the Panel to present those sentences in a new paragraph (now paragraph 9,181). We have revised the text accordingly.

Paragraph 9.184

5.98.
The European Union requests the Panel to modify the final sentence of paragraph 9,184 to refer only to the 787-10, and not also to the 787-9/10. The European Union explains that Boeing launched the 787-9 as part of the original family of 787 LCA in 2004, with entry into service scheduled later than for the 787-8. The United States agrees with the revision requested by the European Union.
5.99.
The Panel has made the modification requested by the European Union.

Footnote 3132 to paragraph 9.302 (now footnote 3152 to paragraph 9.300)

5.100.
The European Union requests the Panel to add a summary of the European Union's arguments regarding the legal basis for finding significant price suppression across two product markets. More specifically, the European Union recalls that it argued that the omission from the second part of Article 6.3(c), of the requirement that the "subsidized product" and the "like product" be in the same market, means that significant price suppression, price depression, and lost sales may be established where the effects of a subsidy arise in a product market separate from the product market in which the subsidized product competes. The United States has no comment on the European Union's request.
5.101.
The Panel has made the addition requested by the European Union.

Footnote 3164 to paragraph 9.324 (now footnote 3185 to paragraph 9.322)

5.102.
The European Union requests the Panel to add the relevant finding by the original panel referenced in paragraph 7.1793 of that report as a quotation to this footnote which it considers comprises the sixth through eighth sentences of that paragraph.
5.103.
The United States notes that footnote 3164 (now footnote 3185) cites to paragraph 7.1793 of the Panel Report in US – Large Civil Aircraft (2nd complaint), which it argues includes relevant text that the European Union has not requested be included in the quotation from that paragraph. The United States considers that, rather than adding an incomplete quotation from paragraph 7.1793, as proposed by the European Union, or alternatively quoting virtually the entirety of the cited paragraph, the best course of action is to reject the European Union's request and leave footnote 3164 (now footnote 3185) unchanged.
5.104.
The European Union has not adequately explained why it considers it appropriate to quote only the sixth through eighth sentences of paragraph 7.1793 of the panel report in US – Large Civil Aircraft (2nd complaint) with the Panel's citation to that paragraph in footnote 3164 (now footnote 3185).
5.105.
The Panel therefore declines to make the modification requested by the European Union.

Footnote 3277 to paragraph 9.392 (now footnote 3288 to paragraph 9.389)

5.106.
The European Union requests the Panel to clarify, in the second sentence of footnote 3277 (now footnote 3288), that the cited number of aircraft alleged to be lost sales between 2007 and 2012 covers not only alleged lost sales of the A350XWB but also of the A320neo and A320ceo. The United States agrees with the requested correction.
5.107.
The Panel has made the correction requested by the European Union.

Paragraph 9.461 (now paragraph 9.458)

5.108.
The European Union requests the Panel to correct the second sentence of paragraph 9,461 (now paragraph 9,458) by adding the word "and" before the phrase "there were no other non‑price factors that explain Boeing's success in obtaining the sale …".
5.109.
The United States responds that the European Union's proposed revision would be confusing because the placement of the commas and the repeated use of the word "and" would leave uncertainty as to which phrase or phrases explain what the Panel means by "price-sensitive" and which phrase or phrases are criteria in addition to price sensitivity that together resulted in two of the examined sales campaigns. The United States proposes an alternative modification to the second sentence of paragraph 9,461 (now paragraph 9,458) in which the word "and" would be inserted as proposed by the European Union, but the comma that precedes that word would be deleted.
5.110.
The Panel has modified the second sentence of paragraph 9,461 (now paragraph 9,458) taking into account the comments of both parties.

Paragraph 9.483 (now paragraph 9.480)

5.111.
The European Union requests the panel to add the term "significant" in the last clause of paragraph 9,483 (now paragraph 9,480) to accurately reflect the European Union's arguments as presented in paragraphs 9,415 and 9,432 (now paragraphs 9,412 and 9,429). The United States has no comment on the European Union's request.
5.112.
The Panel has made the modification requested by the European Union.

5.2.6 Appendix 1

Paragraph 49

5.113.
The United States argues that the evidence before the Panel does not support the conclusion, expressed in the final sentence of paragraph 49 of Appendix 1, that collaborative research and development agreements "typically" give [***]. The United States accordingly requests that the final sentence of paragraph 49 of Appendix 1 be modified to state only that [***].
5.114.
The United States argues that the analysis of the Panel in the preceding section of Appendix 1 does not contain a comprehensive discussion of the amounts paid by the commissioning parties to use the intellectual property. Moreover, according to the United States, taking the 18 R&D agreements identified by Berneman and Razgaitis as the broadest example:

a. 14 required the commissioning party to pay royalties to the commissioned party in the event it made commercial sales of a product using the results of the contracted research, without regard to whether the sale was subject to an exclusive or non‑exclusive licence;

b. a 15th contract called for the payment of royalties in some situations and profit-sharing in others;

c. some of the agreements granted the commissioning party only an exclusive licence, either because that licence covered essentially all products or because the exclusive licence applied only to products that the commissioning party chose to commercialize, while the commissioned party retained all of the rights with respect to other products;

d. nine of the 18 agreements required the commissioning party to make milestone payments in addition to royalties, typically linked to the achievement of steps that lead to marketability of products resulting from the research.

5.115.
On the basis of the foregoing, the United States argues that the evidence before the Panel does not support a conclusion that collaborative research and development agreements [***].
5.116.
The European Union requests the Panel to leave unchanged the language of the text of the Interim Report in paragraph 49 of Appendix 1.
5.117.
The European Union considers that the United States' comment appears to be focused on the Panel's reference to the "cost" of non-exclusive licences for the commissioning party (in the sense of the amounts paid by the commissioning parties to use the intellectual property), and the reference in the last sentence of paragraph 49 to [***]. It notes, however, that the United States requests the Panel to remove all reference to non-exclusive licences, and argues that such a request is inconsistent with the fact that the Panel correctly explains in paragraph 49 that, under the sample collaborative R&D agreements, the commissioning party obtains [***].
5.118.
The European Union further argues that the United States' references to the agreements identified by Berneman and Razgaitis do not substantiate its request, including with respect to the specific question of cost. Rather, the European Union considers that those agreements support the Panel's conclusion that [***]. The European Union argues, more specifically that some of the 18 R&D agreements automatically provide the commissioning party with royalty-free licences to commercially use foreground intellectual property, while under other agreements in this group, the commissioning party receives patent ownership rights to some of the newly developed technology, and therefore does not need to acquire or pay for a licence to commercially use their own intellectual property. Both of these situations, according to the European Union, are situations where the commissioning party can [***], in parallel with the commissioned party, fully consistent with the line in the last sentence of paragraph 49 of Appendix 1 that the United States requests be deleted.
5.119.
The European Union further observes that the final sentence in paragraph 49 appears in the "Conclusions" section of Appendix 1, which considers evidence beyond the 18 agreements referred to by the United States in its comment above, and includes also the Panel's examination and findings under Contracts A through F, which fully support the conclusion in the final sentence of paragraph 49 that the United States requests be deleted. In this regard, the European Union notes that, under Contracts A through F, [***]. The European Union refers to the Panel's summary of Contracts A through F in paragraph 21 of Appendix 1, noting that the United States does not object to the Panel's conclusion that, with respect to Contracts A through F, [***]. The European Union accordingly argues that, in requesting deletion of an important aspect of the Panel's conclusion, the United States has chosen to ignore an entire section of the Panel's analysis upon which that conclusion is partially based.
5.120.
We consider that it is possible to address the United States' objection to the accuracy of the last sentence of paragraph 49 of Appendix 1 without deleting the whole phrase that follows (b) in that sentence, which as the European Union suggests, is not warranted. The Panel has modified the last sentence of paragraph 49 of Appendix 1 accordingly.

5.3 The BCI or HSBI designation of certain information

5.121.
The parties each made a number of requests regarding the bracketing and redaction of information in the Interim Report as BCI or HSBI. The United States agrees with the European Union's requests and the European Union did not comment with respect to the United States' requests.
5.122.
The Panel has made the requested changes to the designations of certain information as BCI or HSBI.

6 Introduction to Panel findings

6.1 Alleged non-compliance of the United States with Article 7.8 of the SCM Agreement as the main subject of this compliance proceeding

6.1.
Our task in this proceeding under Article 21.5 of the DSU is to resolve a "disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings" of the DSB.48 The central issue before us, in this regard, is whether the United States has complied with the recommendations and rulings adopted by the DSB in the original proceeding pursuant to Article 7.8 of the SCM Agreement.49
6.2.
The European Union claims that "the United States has failed to implement the DSB's recommendations in US – Large Civil Aircraft (2nd complaint)­ i.e. that it withdraw the subsidies or take appropriate steps to remove the adverse effects, pursuant to Article 7.8 of the SCM Agreement".50
6.3.
The United States asserts that "the United States has either withdrawn the relevant subsidies or taken appropriate steps to remove their adverse effects. The United States has accordingly complied fully with the recommendations and rulings of the DSB".51
6.4.
While the European Union's request for the establishment of a panel also refers to Article 4.7 of the SCM Agreement52, the European Union has indicated that it does not request the Panel to make a finding that the United States has failed to comply with that provision.53
6.5.
We note that the European Union also claims that the measures at issue in this proceeding are inconsistent with Articles 3.1(a) and (b) and 3.2 of the SCM Agreement and Article III:4 of the GATT 1994. Insofar as these claims are within the scope of this proceeding, we address them in Section 10of this Report.

6.2 Article 7.8 of the SCM Agreement and Article 19 of the DSU

6.6.
Article 7.8 of the SCM Agreement provides:

Where a panel report or an Appellate Body report is adopted in which it is determined that any subsidy has resulted in adverse effects to the interests of another Member within the meaning of Article 5, the Member granting or maintaining such subsidy shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy.

6.7.
In the original proceeding in this dispute the Appellate Body recommended:

{T}hat the DSB request the United States to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the SCM Agreement,into conformity with its obligations under that Agreement. More specifically, having regard to the recommendation made by the Panel in paragraph 8.9 of its Report and the provisions of Article 7.8 of the SCM Agreement, the Appellate Body recommends that the United States take appropriate steps to remove the adverse effects found to have been caused by its use of subsidies, or to withdraw those subsidies.54

6.8.
Article 19.1 of the DSU provides that where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend "that the Member concerned bring the measure into conformity with that agreement". It would appear from the Appellate Body's recommendation in the original proceeding that the Appellate Body regards the requirements of Article 7.8 of the SCM Agreement as a specific expression of this general compliance obligation.
6.9.
We note, in this regard, that in disputes involving findings of actionable subsidies, the Appellate Body has consistently formulated its recommendations in the terms used in Article 19.1 of the DSU.
6.10.
Thus, in US – Upland Cotton and US – Upland Cotton (Article 21.5 – Brazil),the Appellate Body upheld panel findings regarding actionable subsidies provided by the United States to U.S. cotton producers and recommended that "the Dispute Settlement Body request the United States to bring its measures, found in this report and in the panel report as modified by this report to be inconsistent with the Agreement on Agriculture and the SCM Agreement, into conformity with its obligations under those Agreements".55
6.11.
Similarly,in EC and certain member States – Large Civil Aircraft, the Appellate Body observed that to the extent that it had upheld the Panel's findings regarding actionable subsidies or those findings had not been appealed, "the Panel's recommendation pursuant to Article 7.8 of the SCM Agreement,in paragraph 8.7 of the Panel Report, that 'the Member granting each subsidy found to have resulted in such adverse effects, 'take appropriate steps to remove the adverse effects or … withdraw the subsidy'', stands". The Appellate Body then recommended "that the DSB request the European Union to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the SCM Agreement, into conformity with its obligations under that Agreement".56
6.12.
We also note the Appellate Body's discussion in US – Upland Cotton (Article 21.5 – Brazil) of the relationship of Article 7.8 of the SCM Agreement to the general DSU rules and procedures:

Article 7.8 is one of the "special or additional rules and procedures on dispute settlement contained in the covered agreements" that are identified in Article 1.2 and Appendix 2 of the DSU, which prevail over the general DSU rules and procedures to the extent that there is a difference between them. As we see it, Article 7.8 specifies the actions that the respondent Member must take when a subsidy granted or maintained by that Member is found to have resulted in adverse effects to the interests of another Member. This means that, in order to determine whether there is compliance with the DSB's recommendations and rulings in a case involving such actionable subsidies, a panel would have to assess whether the Member concerned has taken one of the actions foreseen in Article 7.8 of the SCM Agreement.57

6.13.
The fact that in the original proceeding in this dispute the Appellate Body formulated its recommendation under Article 7.8 of the SCM Agreement, as a specific instance of the general obligation in Article 19.1 of the DSU that a Member bring its measure into conformity with its obligations under a covered agreement, suggests to us that the Appellate Body does not consider that the compliance obligations under Article 7.8 of the SCM Agreement are of a fundamentally different nature than the compliance obligations under Article 19.1 of the DSU. That the Appellate Body interprets Article 7.8 in harmony with Article 19 of the DSU58 is also apparent from the fact that when the Appellate Body discussed the scope of Article 7.8 in US – Upland Cotton (Article 21.5 – Brazil),it observed that "remedies in WTO law are generally understood to be prospective".59
6.14.
The Appellate Body has explained that Article 7.8 of the SCM Agreement will usually require a Member to take "affirmative action":

Pursuant to Article 7.8, the implementing Member has two options to come into compliance. The implementing Member: (i) shall take appropriate steps to remove the adverse effects; or (ii) shall withdraw the subsidy. The use of the terms "shall take" and "shall withdraw" indicate that compliance with Article 7.8 of the SCM Agreement will usually involve some action by the respondent Member. This affirmative action would be directed at effecting the withdrawal of the subsidy or the removal of its adverse effects. A Member would normally not be able to abstain from taking any action on the assumption that the subsidy will expire or that the adverse effects of the subsidy will dissipate on their own.60

6.15.
The issues in dispute in this proceeding pertain to a large extent to the question of whether the United States has taken such "affirmative action" and, if so, whether that action has been adequate.61 The diverging positions of the parties with regard to whether the United States has taken such "affirmative action" reflect the very different narratives underlying the parties' respective cases.
6.16.
The United States' basic narrative is that it has withdrawn most of the specific subsidies found to have caused adverse effects in the original proceeding and that the subsidies that have not been withdrawn are too small to cause adverse effects. The United States argues that NASA and DOD have greatly reduced the amount of research they pay Boeing to conduct under the relevant contracts and agreements and that NASA has also modified the way it conducts research so as to remove the aspects of its practices that led to the findings against the pre-2007 NASA procurement contracts. The U.S. Congress terminated the FSC/ETI measures in 2006 and Boeing has not received FSC/ETI deductions since then. The value of the tax abatements associated with the pre-2007 City of Wichita IRBs is tiny, the City of Wichita has not issued any new IRBs to Boeing, and the IRB programme is no longer specific. The United States considers that, by withdrawing the FSC/ETI measures, it has removed the adverse effects of the Washington State B&O tax rate reduction (the only remaining subsidy subject to the DSB recommendations and rulings which has not been withdrawn) because the amount of that tax rate reduction is too small by itself to cause adverse effects.62 The United States alleges that the European Union engages in a number of unsustainable efforts to inflate the value of, and expand the scope of, the measures it is challenging in order to mask the reality that the measures within the scope of this proceeding, which the United States has for the most part withdrawn and reduced in value, cannot be causing any adverse effects, let alone the magnified effects alleged by the European Union.63
6.17.
The European Union's basic narrative is that, far from withdrawing the subsidies found to have caused adverse effects to the European Union's LCA-related interests in the original proceeding, the U.S. federal, state, and local authorities have significantly increased those subsidies and worsened their adverse effects. The very same subsidies that were found in the original proceeding to have enabled the availability and advanced technology of the 787 and the lower prices of the 737NG, plus additional, closely related subsidies, exist at present and cause present significant competitive harm to the European Union's LCA-related interests. The European Union argues that none of the U.S. subsidies at issue in the original proceeding has been withdrawn. The European Union rejects the United States' arguments that adding allegedly lower annual amounts of post-2006 aeronautics R&D subsidies results in a reduction in subsidies. Rather, adding new subsidies to the earlier set of massive, non-withdrawn subsidies, even at a lower rate, increases the pool of subsidies and the adverse effects.64 The European Union regards the United States' objections to the inclusion of certain measures within the scope of this proceeding as being without merit, and its arguments concerning the magnitudes of the subsidies as depending on "atomising" the subsidy – an analysis the Appellate Body rejected.65 The European Union alleges that the United States has provided Boeing with USD 8.85 billion in subsidies over the 2007-2014 period, with the annual amounts significantly increasing each year. Accordingly, the amount of subsidies available to Boeing for pricing down its LCA in strategic, price sensitive sales campaigns is substantial and not insignificantly small, as the United States suggests.66

6.3 Structure of the European Union's case that the United States has failed to withdraw the subsidy and take appropriate steps to remove the adverse effects, within the meaning of Article 7.8 of the SCM Agreement

6.18.
It is well established that the general rules on the allocation of the burden of proof in WTO dispute settlement also apply to Article 21.5 of the DSU67, including in cases involving an alleged failure of a Member to take the steps required by Article 7.8 of the SCM Agreement. As a consequence, the European Union as complaining party in this proceeding bears the burden of demonstrating both that the United States has failed to withdraw the subsidy and that the United States has failed to take appropriate steps to remove the adverse effects, within the meaning of Article 7.8. This aspect of the allocation of the burden of proof is not in dispute between the parties.68
6.19.
In this regard, we also note, and agree with, the observation of the panel in US – Upland Cotton (Article 21.5 – Brazil) that there is "no support in the text of Article 7.8 of the SCM Agreement and Article 21.5 of the DSU for the proposition that in a proceeding under Article 21.5 involving an alleged failure to comply with Article 7.8 of the SCM Agreement, a Member which has not withdrawn the subsidy has the burden of showing that it has removed the adverse effects".69
6.20.
Given that the burden of proof is on the European Union to demonstrate that the United States has failed to comply with Article 7.8, our analysis in this Report proceeds on the basis of an examination of the arguments and evidence advanced by the European Union. We find it useful, in this respect, to set out in this Section of our Report how the European Union has structured its case in accordance with its interpretation of Article 7.8.
6.21.
The European Union argues that a finding of non-compliance with Article 7.8 requires a determination that a Member grants or maintains subsidies after the end of the implementation period70 and that these subsidies cause present adverse effects.71 Thus, the European Union interprets the obligation to "withdraw the subsidy" as an obligation not to grant or maintain the subsidy after the end of the implementation period72 and it interprets the obligation to "take appropriate steps to remove the adverse effects" as an obligation to ensure that no present adverse effects arise after the end of that period from any subsidies that are not withdrawn. In light of this interpretation, the European Union claims that the United States has failed to comply with its obligations under Article 7.8 on the basis that: (a) the United States has failed to withdraw the subsidy, within the meaning of Article 7.8, because it grants or maintains subsidies to Boeing after the end of the implementation period; and (b) the United States has failed to take appropriate steps to remove the adverse effects, within the meaning of Article 7.8, because these subsidies cause present adverse effects to the interests of the European Union, within the meaning of Article 5 of the SCM Agreement.73 These present adverse effects to the interests of the European Union occur "in the form of tens of billions of U.S. dollars of lost revenue to Airbus through significant lost sales, significantly suppressed prices, and displaced or impeded market shares in various LCA product markets".74
6.22.
With respect to the European Union's interpretation of Article 7.8, the United States considers that "{i}n effect, the EU is asserting that a Member challenging compliance under Article 7.8 must make its entire case again". The United States notes that "the DSU and the SCM Agreement do not constrain a Member to adopt this approach" but that "as the EU does not advance any other arguments, the question of whether it is the only way to demonstrate noncompliance under Article 7.8 is not before the panel".75
6.23.
Thus, in light of how the European Union has framed its case, our task in this proceeding is to determine whether the United States has failed to withdraw the subsidy within the meaning of Article 7.8 because it grants or maintains subsidies to Boeing after the end of the implementation period and, if so, whether the United States has failed to take appropriate steps to remove the adverse effects, within the meaning of Article 7.8, because these subsidies cause present adverse effects. In proceeding on the basis, we do not mean to imply that we endorse the European Union's apparent view that a finding of non-compliance with Article 7.8 always requires this type of analysis.
6.24.
While the central proposition advanced by the European Union in support of its claim that the United States has failed to comply with Article 7.8 is that the United States grants or maintains subsidies to Boeing after the end of the implementation period that cause present adverse effects, we see an important conceptual distinction in the manner in which the European Union purports to substantiate this assertion between two groups of measures: seven types of "post-2006" subsidies allegedly provided by the United States to Boeing since the reference period considered in the original proceeding, on the one hand, and certain "pre-2007" NASA and DOD aeronautics R&D subsidies at issue in the original proceeding, on the other.
6.25.
The main argument of the European Union in support of its position that the United States grants or maintains subsidies to Boeing after the end of the implementation period that cause present adverse effects is that, subsequent to the 2004-2006 reference period considered in the original proceeding, the United States has granted or maintained subsidies to Boeing that are of "the same nature" as the subsidies that were found to be actionable in the original proceeding. In this respect, the European Union asserts that the United States grants or maintains seven categories of "post-2006 subsidies to Boeing's LCA Division".76 These post-2006 subsidies include alleged subsidies provided pursuant to programmes that continue the programmes at issue in the original proceeding and additional subsidies allegedly introduced by the United States that the European Union considers to be within the scope of this proceeding because of their relationship with the measures at issue in the original proceeding.77
6.26.
The European Union submits that the post-2006 subsidies at issue are either "similar to, and essentially a continuation of" or "similar to" the subsidies the subject of the DSB recommendations and rulings in the original proceeding:

In the present dispute, the European Union challenges a number of post-2006 subsidies maintained by the United States. With respect to these subsidies, the European Union demonstrated that NASA's post-2006 aeronautics R&D subsidies are similar to, and essentially a continuation of, NASA's pre-2007 aeronautics R&D subsidies. The European Union has also demonstrated that the FAA CLEEN Program is similar to, and essentially a continuation of, NASA's aeronautics R&D subsidies. Similarly, the European Union established that the "new" DOD subsidies are similar to, and essentially a continuation of, the NASA and DOD programmes at issue before the original panel. The European Union also demonstrated that the South Carolina subsidies are similar to the Washington, Kansas, and FSC/ETI subsidies at issue before the original panel. In respect of all these measures, the European Union has demonstrated that they are specific subsidies, within the meaning of Articles 1 and 2 of the SCM Agreement, that under current factual circumstances cause adverse effects, rendering them inconsistent with Articles 5 and 6.3 of the SCM Agreement.78

6.27.
The European Union submits that the post-2006 subsidies cause adverse effects in the post‑implementation period mainly through a "price causal mechanism".
6.28.
On the other hand, with respect to certain pre-2007 NASA and DOD aeronautics R&D subsidies that were found to be a cause of adverse effects by virtue of their technology effects in relation to the Boeing 78779, the European Union submits that the United States grants or maintains subsidies to Boeing after the end of the implementation period and has thereby failed to withdraw the subsidy, within the meaning of Article 7.8, because the United States has failed to modify the terms of the measures found to be actionable subsidies in the original proceeding so as to remove the benefit conferred by these measures. With respect to these pre-2007 NASA and DOD aeronautics R&D subsidies, as well as the pre-2007 DOD procurement contracts which it considers are within the scope of this proceeding, the European Union argues that the United States has failed to take appropriate steps to remove the adverse effects, within the meaning of Article 7.8, because these subsidies continue to cause additional adverse effects in the post-implementation period through a "technology causal mechanism". Additionally, the European Union argues that the particular adverse effects found in the original proceeding to have been caused by the pre-2007 NASA and DOD aeronautics R&D subsidies to the 787 have not ceased to exist and that these adverse effects themselves continue into the post-implementation period.
6.29.
Thus, it is possible to represent the main aspects of the European Union's case as follows:

a. The United States grants or maintains subsidies to Boeing after the end of the implementation period and has thus failed to withdraw the subsidy, within the meaning of Article 7.8 of the SCM Agreement:

· Post-2006 subsidies: The United States grants or maintains seven categories of subsidies to Boeing that are similar to (and a continuation of) the measures found to be actionable subsidies in the original proceeding.

· Pre-2007 NASA and DOD aeronautics R&D subsidies: The United States has failed to modify the terms of the particular NASA and DOD transactions at issue in the original proceeding in a manner that removes the benefit.80

b. The subsidies granted or maintained by the United States cause present adverse effects and the United States has thus failed to take appropriate steps to remove the adverse effects, within the meaning of Article 7.8 of the SCM Agreement81:

· Post-2006 subsidies: the subsidies cause new adverse effects in the post‑implementation period mainly through a price causal mechanism.

· Pre-2007 NASA and DOD aeronautics R&D subsidies: (i) the subsidies continue to cause additional adverse effects in the post-implementation period through a technology causal mechanism; and (ii) adverse effects found in the original proceeding to have been caused by these subsidies have not ceased to exist and continue into the post-implementation period.

6.30.
The European Union's approach to attempt to demonstrate non-compliance with Article 7.8 on the basis of certain pre-2007 subsidies the subject of the DSB recommendations and rulings, and alleged post-2006 subsidies and their effects, rests on the premise that Article 7.8 applies not only to the particular subsidy measures granted in the past that were the subject of the relevant DSB recommendations and rulings in the original proceeding, but also to measures taken subsequent to the conclusion of the original proceeding. We consider that this premise is consistent with the Appellate Body's interpretation of the concept of "withdrawal" of the subsidy and its analysis in US – Upland Cotton (Article 21.5 – Brazil) of the scope of Article 7.8.
6.31.
The meaning of the term "withdraw" the subsidy has been discussed mainly in disputes involving Article 4.7 of the SCM Agreement, which provides that in case of a finding of a prohibited subsidy "the panel shall recommend that the subsidizing Member withdraw the subsidy without delay".
6.32.
In Brazil – Aircraft (Article 21.5 – Canada), the Appellate Body observed that the word "withdraw" in Article 4.7 of the SCM Agreement "has been defined as 'remove' or 'take away' and as 'to take away what has been enjoyed; to take from'" and that "{t}his definition suggests that 'withdrawal' of a subsidy, under Article 4.7 of the SCM Agreement, refers to the 'removal' or 'taking away' of that subsidy".82 The Appellate Body considered that "to continue to make payments under an export subsidy measure found to be prohibited is not consistent with the obligation to 'withdraw' prohibited export subsidies, in the sense of 'removing or 'taking away'" and thus found that "the recommendation of the DSB requires Brazil to stop issuing NTN-I bonds as from 18 November 1999 pursuant to letters of commitment issued before 18 November 1999".83
6.33.
In US – FSC (Article 21.5 – EC II), the Appellate Body considered that:

Where a Member withdraws a prohibited subsidy only in part, it has failed to comply fully with its WTO obligation and the Article 4.7 recommendation continues to be in effect with respect to the part of the subsidy that has not been withdrawn.Similarly, full withdrawal of a prohibited subsidy within the meaning of Article 4.7 of the SCM Agreement cannot be achieved by a "measure taken to comply" that replaces the original subsidy with yet another subsidy found to be prohibited. In both instances, the Member cannot be said to have complied with the obligation to withdraw fully the prohibited subsidy.84

6.34.
In US – Upland Cotton (Article 21.5 – Brazil), the Appellate Body clarified that the obligation in Article 7.8 is not limited to the particular "subsidies granted in the past and which may have formed the basis of a panel's determination of present serious prejudice and adverse effects" but "is of a continuing nature, extending beyond subsidies granted in the past":

The question then becomes: With respect to which subsidies must the implementing Member take such action? Such action would certainly be expected with respect to subsidies granted in the past and which may have formed the basis of a panel's determination of present serious prejudice and adverse effects. However, we do not see the obligation in Article 7.8 as being limited to subsidies granted in the past. Article 7.8 expressly refers to a Member "granting or maintaining such subsidy". The verb "maintain" suggests, to us, that the obligation set forth in Article 7.8 is of a continuous nature, extending beyond subsidies granted in the past. This means that, in the case of recurring annual payments, the obligation in Article 7.8 would extend to payments "maintained" by the respondent Member beyond the time period examined by the panel for purposes of determining the existence of serious prejudice, as long as those payments continue to have adverse effects. Otherwise, the adverse effects of subsequent payments would simply replace the adverse effects that the implementing Member was under an obligation to remove. Such a reading of Article 7.8 would not give meaning and effect to the term "maintain", which is distinct from the term "grant", and has also been included in that Article. Indeed, it would render the term "maintain" redundant. In addition, it would fail to give meaning and effect to the obligation to "take appropriate steps to remove the adverse effects" in Article 7.8, and to the requirement under Article 21.5 to "comply" with the DSB's recommendations and rulings, including the requirement to take the remedial action foreseen in Article 7.8 as a consequence of a finding of adverse effects.85

6.35.
The Appellate Body found support for this view in the context provided by Article 4.7 of the SCM Agreement. Referring to the above-quoted passage from US – FSC (Article 21.5 – EC II)86,the Appellate Bodystated that"{s}imilarly, a Member would not comply with the obligation in Article 7.8 to withdraw the subsidy if it leaves an actionable subsidy in place, either entirely or partially, or replaces that subsidy with another actionable subsidy".87
6.36.
In light of the Appellate Body's interpretation of the term "withdraw" the subsidy and its analysis of the scope of Article 7.8, it is clear that the scope of our analysis under Article 7.8 is not inherently limited to the particular pre-2007 measures that were found to be inconsistent with the SCM Agreement in the original proceeding and that subsidies allegedly granted to Boeing subsequent to the reference period considered by the original panel can also be the basis for a finding of non-compliance under Article 7.8. Although the subsidies at issue considered in US – Upland Cotton (Article 21.5 – Brazil) were so-called recurrent subsidies, the reasoning of the Appellate Body in our view is not limited to such subsidies and applies more generally to situations in which a Member "leaves an actionable subsidy in place, either entirely or partially, or replaces that subsidy with another actionable subsidy".88 We note that the United States does not argue in this proceeding that Article 7.8 does not apply to any measure taken subsequent to the conclusion of the original proceeding and that the Panel should therefore limit its analysis to the particular pre-2007 measures the subject of the DSB recommendations and rulings. The United States argues that many post-2006 measures raised by the European Union are not properly within the scope of this proceeding on the basis that those measures do not have a sufficiently close nexus with the measures the subject of the DSB recommendations and rulings to be considered "measures taken to comply".89 However, the United States does not object to the inclusion of any measure simply because it is a post-2006 measure. Our view that Article 7.8 can in principle apply to measures introduced subsequent to the reference period considered in the original proceeding is without prejudice to whether the particular post-2006 measures challenged by the European Union are properly within the scope of this proceeding. We consider that matter below in Section 7 of this Report.
6.37.
In addition to the notion that Article 7.8 applies to both the subsidies found to be actionable in the original proceeding and subsidies allegedly provided subsequent to the original proceeding, another important aspect of the European Union's analytical approach in this proceeding is that it would appear to rest on a "prospective" interpretation of Article 7.8, both in respect of the obligation to "withdraw the subsidy" and the obligation to "take appropriate steps to remove adverse effects". The European Union expresses the failure of the United States to "withdraw the subsidy" as resulting from the fact that after the end of the implementation period the United States grants or maintains subsidies to Boeing that cause present adverse effects. The European Union does not argue that the United States has failed to comply with Article 7.8 by not taking retroactive action with respect to the particular subsidies found to be actionable subsidies in the original proceeding or to their effects. It has not argued that the United States was obligated under Article 7.8 to seek repayment from Boeing of subsidies granted in the past. With regard to the failure of the United States to take appropriate steps to remove the adverse effects, within the meaning of Article 7.8, the European Union states explicitly that the obligation in Article 7.8 to take appropriate steps to remove the adverse effects "does not refer to the removal of adverse effects in the past" but "to the withdrawal of adverse effects in the sense of ensuring that there are no adverse effects arising in the new reference period".90
6.38.
As noted above, the Appellate Body observed in US – Upland Cotton (Article 21.5 – Brazil) that "remedies in WTO law are generally understood to be prospective in nature".91 Thus, the Appellate Body does not consider that the fact that Article 7.8 uses a formulation that is different from the language of Article 19 of the DSU supports a retrospective reading of that provision. The Appellate Body's approach in this respect appears to be different from the reasoning of the compliance panel in Australia – Automotive Leather II (Article 21.5 – US).The panel in that proceedingconcluded from an analysis of the ordinary meaning of the term "withdraw the subsidy" in Article 4.7 of the SCM Agreement, "read in context, and in light of its object and purpose, and in order to give it effective meaning, that this term is not limited to prospective action only but may encompass repayment of the prohibited subsidy". The panel also found that "repayment in full of the prohibited subsidy is necessary in order to 'withdraw the subsidy' in this case".92 The European Union does not rely on the reasoning contained in this panel report in this proceeding.93
6.39.
Aside from the Appellate Body Report in US – Upland Cotton (Article 21.5 – Brazil), we consider that the context provided by Articles 7.9 and 7.10 of the SCM Agreement provides further support for a prospective interpretation of Article 7.8.
6.40.
Article 7.9 provides that:

In the event the Member has not taken appropriate steps to remove the adverse effects of the subsidy or withdraw the subsidy within six months from the date when the DSB adopts the panel report or the Appellate Body report, and in the absence of agreement on compensation, the DSB shall grant authorization to the complaining Member to take countermeasures, commensurate with the degree and nature of the adverse effects determined to exist, unless the DSB decides by consensus to reject the request.

6.41.
Article 7.10 provides that:

In the event that a party to the dispute requests arbitration under paragraph 6 of Article 22 of the DSU, the arbitrator shall determine whether the countermeasures are commensurate with the degree and nature of the adverse effects determined to exist.

6.42.
The decision of the arbitrator in US – Upland Cotton (Article 22.6 – US II) suggests that a determination under Article 7.10 of the SCM Agreement whether proposed countermeasures are "commensurate with the degree and nature of the adverse effects determined to exist" should be made on the basis of the effects found to exist as at the end of the implementation period without consideration of past adverse effects that have occurred prior to that date.94 We consider that this is relevant to the interpretation of the temporal scope of the obligation in Article 7.8 to take appropriate steps to remove the adverse effects because in our view, "the adverse effects determined to exist" in Articles 7.9 and 7.10 are "the adverse effects" in Article 7.8.
6.43.
Finally, with regard to the requirement of Article 7.8 to "take appropriate steps to remove the adverse effects", it is important to note that the European Union does not argue that present adverse effects may be presumed to exist on account of the similarity of the post-2006 subsidies with the measures found to confer subsidies in the original proceeding. The European Union specifically states in this respect that it "disagrees that a finding of inconsistency with Article 7.8 of the SCM Agreement can be based on presumed, rather than established, similar effects from the new subsidies".95

6.4 Organization of Panel's analysis

6.44.
In Section 7 of the Report, we examine whether certain measures and claims of the European Union are outside the Panel's terms of reference or are otherwise outside the scope of this proceeding.
6.45.
Having identified the measures and claims within our terms of reference and within the scope of this proceeding, we examine in Section 8 of the Report whether the United States has failed to withdraw the subsidy, within the meaning of Article 7.8 of the SCM Agreement. Our analysis in that Section is structured around the distinction discussed above between the arguments of the European Union regarding the pre-2007 NASA and DOD aeronautics R&D subsidies and its arguments with respect to the broader group of the post-2006 subsidies:

a. Regarding the particular pre-2007 NASA and DOD aeronautics R&D subsidies the subject of the DSB recommendations and rulings, we examine, in Section 8.1 of the Report, whether the United States has failed to withdraw the subsidy on the basis that the modifications made by the NASA-Boeing Patent Licence Agreement and DOD-Boeing Patent Licence Agreement to the terms of the NASA procurement contracts and DOD assistance instruments identified in annexes A and B of the United States' Compliance Communication have not removed the benefit, within the meaning of Article 1.1(b) of the SCM Agreement.

b. In Section 8.2 of this Report, we examine whether the United States has failed to withdraw the subsidy by granting or maintaining certain post-2006 subsidies to Boeing: NASA aeronautics R&D measures; DOD aeronautics R&D measures96; FAA aeronautics R&D measure; tax exemptions and exclusions under FSC/ETI legislation and successor legislation; tax abatements provided through IRBs issued by the City of Wichita; Washington state and local measures; and South Carolina measures.

6.46.
In Section 9 of the Report, we examine whether subsidies that the United States grants or maintains after the end of the implementation period and which we will have found to be specific, within the meaning of Article 2, cause present adverse effects in the form of certain kinds of serious prejudice to the interests of the European Union, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement, and whether the United States has thus failed to take appropriate steps to remove the adverse effects. The Panel addresses the European Union's arguments concerning the effects of the various subsidies on Boeing's product development and pricing behaviour in the context of the particular LCA product markets and the particular Boeing LCA that are said to benefit from the subsidies. The Panel therefore examines: (a) whether subsidies benefiting the 787 and 777X cause serious prejudice in respect of the A350XWB and A330; and (b) whether subsidies benefiting the 737 MAX and 737NG cause serious prejudice in respect of the A320neo and A320ceo, respectively, in each case, through the various causal mechanisms alleged by the European Union.
6.47.
In Section 10 of the Report, we examine the European Unions' claims that the subsidies granted or maintained by the United States are inconsistent with Articles 3.1(a) and (b) and 3.2 of the SCM Agreement and Article III:4 of the GATT 1994, insofar as we will have found those claims to be within our terms of reference and within the scope of this proceeding.

7 Whether certain measures and claims are outside the Panel's terms of reference or are otherwise outside the scope of this proceeding

7.1 Introduction

7.1.
In this Section of the Report, we address whether certain measures, and claims with respect to certain measures, are outside the Panel's terms of reference or are otherwise outside the scope of this proceeding. In Section 1.3.3, we indicate that on 13 November 2012, the United States submitted a request for preliminary rulings, objecting to the inclusion of certain claims and challenged measures as outside the Panel's terms of reference. Although the United States raises many specific objections, which we address in this Section, they are generally of one of the following three types:

a. objections based on a failure to comply with the requirements of Article 6.2 of the DSU to identify the specific measures at issue and to provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly;

b. objections to the inclusion of certain measures within the scope of the compliance proceeding on the basis that the challenged measures are neither measures subject to the DSB recommendations and rulings, nor measures taken to comply, within the meaning of Article 21.5 of the DSU; and

c. objections that the European Union is precluded from bringing certain claims in respect of certain measures on the basis that these claims: (i) were unsuccessfully brought against certain measures in the original proceeding and therefore cannot be "re‑litigated" in relation to those same measures in the compliance proceeding; or (ii) were not brought against certain measures in the original proceeding when they could have been and therefore cannot be brought against those same measures for the first time in the compliance proceeding.

7.2.
For purposes of our discussion below, we refer to the objections involving conformity with the requirements of Article 6.2 of the DSU as "terms of reference" objections, while the other types of objections we refer to more generally as "scope" objections. Although these latter types of objections also pertain to the Panel's terms of reference, the issues raised by these objections relate to the permissible scope of compliance proceedings under Article 21.5 of the DSU.
7.3.
In Section 7.2 below, we address the various objections made by the United States to the inclusion of certain Washington state and local measures within the scope of this proceeding. The scope objections regarding the DOD aeronautics R&D measures, the FAA aeronautics R&D measure and the South Carolina measures are addressed in Sections 7.3, 7.4 and 7.5, respectively. In Section 7.6 we address a number of objections pertaining to the European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement and Article III of the GATT 1994.
7.4.
As explained in Section 1.3.3.2 of this Report, on 4 March 2014, the Panel received a request from the European Union for leave to file an additional submission dealing with the "legal ramifications" of SSB 5952, enacted in 2013 to amend the Washington State tax measures in certain respects, which it argued constituted "additional measures taken to comply by the United States" that are within the scope of this proceeding.97 The Panel declined the European Union's request on 27 May 2014. The Panel issued its reasons for that decision to the parties on 18 September 2014, explaining that the Washington State tax measures, as amended by SSB 5952, are outside the Panel's terms of reference. The text of this ruling appears in Section 7.7 of this Report.

7.2 Washington state and local measures

7.5.
The European Union's claims in this proceeding cover, among other measures, five tax measures enacted by the State of Washington or its municipalities, each of which was challenged and found to be a specific subsidy in the original proceeding:

a. Washington State B&O tax rate reduction for the aerospace industry;

b. Washington State B&O tax credits for preproduction/aerospace product development;

c. Washington State B&O tax credit for property taxes;

d. Washington State sales and use tax exemptions for computer software, hardware, and peripherals; and

e. City of Everett B&O tax rate reduction.

7.6.
The European Union also identifies two additional measures enacted by the State of Washington that have come into existence since the end of the reference period in the original proceeding (i.e. the end of 2006). These two measures are:

a. Washington State B&O tax credit for leasehold excise taxes granted pursuant to House Bill 2466 (HB 2466)98; and

b. the establishment and operation of the Washington State Joint Center for Aerospace Technology Innovation (JCATI).99

7.7.
The United States requests rulings that the Washington measures that were challenged by the European Communities in the original proceeding, other than the Washington State B&O tax rate reduction in subparagraph (a) of paragraph 7.5 above, are outside the scope of this compliance proceeding on the basis that those measures, while found to constitute specific subsidies, were not found to have caused adverse effects and therefore were not subject to the DSB recommendations and rulings.
7.8.
The United States also objects to the inclusion of the Washington State B&O tax credit for leasehold excise taxes and the JCATI measure within the scope of this proceeding on the basis that those measures are neither declared measures taken to comply, nor have they been demonstrated to constitute "undeclared" measures taken to comply on the basis of their close nexus in terms of nature, effects, and timing, with any declared measures taken to comply, or with the DSB recommendations and rulings.
7.9.
Although the European Union's submissions present the Washington State B&O tax credit for leasehold excise taxes as a separate measure from the Washington State B&O tax credit for property taxes, HB 2466 in fact modifies the scope of application of the B&O tax credit previously available with respect to property taxes, to additionally be available with respect to leasehold excise taxes.100 Another Washington measure that was challenged in the original proceeding; namely, the Washington State B&O tax credits for preproduction/aerospace product development, was similarly modified by section 7 of Washington State Substitute Senate Bill 6828 (SSB 6828) to expand: (a) the application of the tax credits to all aerospace product development, rather than just preproduction development; and (b) the eligible entities/persons that may claim the credit (so as to permit non-manufacturing entities to claim the credit for expenditures after 30 June 2008).101 The modifications to the Washington State B&O tax credit measures expand the availability of those tax credits and thus the existing original measures. In the circumstances, it seems somewhat artificial to analyse these modifications on the basis that they are "new" measures, separate from the original measures that they modify.102
7.10.
Therefore, in our analysis of the United States' objections to the inclusion of the Washington state and local measures within the scope of this proceeding, we treat the original B&O tax credit measure and the modification thereto as the same measure; i.e. the Washington State B&O tax credit for property taxes is as modified by HB 2466 to apply to leasehold excise taxes, and the Washington State B&O tax credits for preproduction/aerospace product development are as modified by section 7 of SSB 6828.103

7.2.1 Whether the four original Washington tax measures are outside the scope of this proceeding

7.11.
The United States' makes preliminary rulings requests concerning three tax measures maintained by the State of Washington and one tax measure maintained by the City of Everett (the four original Washington tax measures):

a. Washington State B&O tax credits for preproduction/aerospace product development;

b. Washington State B&O tax credit for property taxes;

c. Washington State sales and use tax exemptions for computer software, hardware, and peripherals; and

d. City of Everett B&O tax rate reduction.

7.12.
All four original Washington tax measures were previously challenged as actionable subsidies in the original proceeding, however, none was found to cause serious prejudice, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement. Consequently, none of these measures was subject to the DSB recommendations and rulings.
7.13.
In this proceeding, the European Union alleges that each of these measures is a specific subsidy, that the United States continues to maintain these subsidy programmes, and that they cause adverse effects to the European Union's interests.104 The United States requests preliminary rulings that the four original Washington tax measures are outside the scope of the compliance proceeding because the original panel had found that these measures did not cause serious prejudice, and that finding was not disturbed by the Appellate Body.105

7.2.1.1 Main arguments of the parties and third parties

7.14.
The United States argues that the four original Washington tax measures are outside the scope of this compliance proceeding because they existed and were challenged on the merits in the original proceeding. They are accordingly not measures taken to comply with the DSB recommendations and rulings. The United States notes that Article 21.5 of the DSU provides for panel proceedings "{w}here there is disagreement as to the … consistency with a covered agreement of measures taken to comply with the recommendations and rulings" of the DSB. The United States submits that the "negative implication of this charging" is that Article 21.5 does not provide relief for disagreements about other types of measures, referring to the Appellate Body in Canada – Aircraft (Article 21.5 – Brazil):

Proceedings under Article 21.5 do not concern just any measure of a Member of the WTO; rather, Article 21.5 proceedings are limited to those "measures taken to comply with the recommendations and rulings" of the DSB. In our view, the phrase "measures taken to comply" refers to measures which have been, or which should be, adopted by a Member to bring about compliance with the recommendations and rulings of the DSB.106

7.15.
The United States argues that the Appellate Body has "defined" the term "measure taken to comply" to refer, inter alia, to "measures which have been, or which should be, adopted by a Member to bring about compliance with the recommendations and rulings of the DSB".107 According to the United States, a measure that existed and was in fact unsuccessfully challenged on the merits in the original proceedings cannot be a measure adopted by a Member to bring about compliance with the DSB recommendations and rulings.108 Accordingly, claims that those measures are inconsistent with the covered agreements are not properly within the terms of reference of a compliance panel.
7.16.
Moreover, the United States submits that expanding the terms of reference of a compliance proceeding to include claims against measures on which the complaining party did not prevail on the merits in the original proceeding would seriously prejudice the responding party's interests. After the DSB adopts its recommendations and rulings in the original proceeding, the responding party has no reason to consider that it should modify or withdraw measures considered on the merits and not found to be WTO-inconsistent. An overly expansive reading of Article 21.5 would require responding parties to either assume that a compliance panel would reverse the DSB findings with respect to a measure, or risk potential countermeasures with no opportunity for a reasonable period of time in which to come into compliance.109
7.17.
The United States rejects the European Union's attempt to distinguish between the "instances of application" of the relevant subsidy programmes that were challenged in the original proceeding and the "instances of application" of those programmes presently being challenged in order to argue that the measures are within the scope of this proceeding.110 The United States regards the four original Washington tax "measures" that were before the original panel and the "measures" that the European Union is seeking to challenge now as being one and the same – there is no basis for treating "subsequent instances of application" of a measure as a separate measure.111
7.18.
The United States further rejects the European Union's assertion that the four original Washington tax measures are within the Panel's terms of reference on the basis of their close nexus to the Washington State B&O tax rate reduction.112 According to the United States, the basis of the European Union's assertion is flawed because the four original Washington tax measures cannot be measures taken to comply: These measures existed at the time when the original panel was established and were not subject to any DSB recommendation or ruling. A panel cannot find that a measure unsuccessfully challenged on the merits in the original proceeding constitutes a measure taken to comply on the basis of the close nexus test.113
7.19.
The European Union rejects the United States' objection that the four original Washington tax measures are outside the Panel's terms of reference. The fact that the original panel did not ultimately find that these measures caused adverse effects during the particular reference period at issue does not now create an issue of jurisdiction or terms of reference.
7.20.
The European Union submits that a panel's terms of reference are fixed by the complaining Member in the panel request. It is when a matter is not set out in the panel request in accordance with the requirements of Article 6.2 of the DSU that it is outside the panel's terms of reference and the panel does not have the authority to rule on it.114 When a matter is properly within the jurisdiction and terms of reference of a WTO adjudicator, that adjudicator is required to assess and rule upon it (subject to the proper exercise of judicial economy which is not relevant for present purposes).115
7.21.
The European Union argues that Article 21.5 of the DSU captures two types of disputes over the existence of measures taken to comply: disputes about whether a particular measure (whether an act or omission) exists, and disputes about whether a particular measure should exist.116 According to the European Union, the United States has failed to ensure that the measures in question, as they are maintained and currently applied, are in conformity with WTO law. There is thus a "disagreement" between the parties as to whether the United States is under an obligation to do so: This matter clearly falls within the scope of Article 21.5 of the DSU.117
7.22.
The European Union argues that in the original proceeding, each of the four original Washington measures "and their relevant instances of application" was found to be a specific subsidy, and these findings were not appealed by the United States. The European Union considers that the question of whether these specific subsidy programmes "and their present instances of application cause adverse effects in a new reference period" requires consideration of changing facts in the evolving market, as well as consideration of the Appellate Body's clarification of the law on aggregation and cumulation of subsidies. Thus, the measures and the facts and evidence with regard to the "instances of application of these programmes that post-date the original proceedings" have changed. Given that these instances of application are not separable from the programmes themselves, all of the relevant measures are therefore within the scope of the compliance proceeding.118
7.23.
In addition, the European Union argues that the four original Washington tax measures are within the scope of this proceeding based on their particularly close relationship to declared measures taken to comply and to the DSB recommendations and rulings (i.e. on the basis that they can be considered "undeclared" measures taken to comply due to their close nexus with declared measures taken to comply and the DSB recommendations and rulings in the original proceeding). The first three of the original Washington tax measures were all part of the same "overarching measure" as the Washington State B&O tax rate reduction (which was subject to the DSB recommendations and rulings); namely, House Bill 2294 (HB 2294) and the Project Olympus Master Site Agreement. The European Union argues that there is a sufficiently close nexus, in terms of nature, effects, and timing, between the first three original Washington tax measures and the Washington State B&O tax rate reduction to satisfy the close nexus test and bring the first three original Washington tax measures within the scope of the compliance proceeding as "undeclared" measures taken to comply.119
7.24.
As to the fourth original Washington tax measure, the City of Everett B&O tax rate reduction, the European Union argues that the nature of this measure is identical to the Washington State B&O tax rate reduction, being the same type of tax reduction enacted at the municipal rather than state level. Like the other original Washington tax measures, this measure is a tax reduction to lower Boeing's overall tax liability, it worsens the United States' existing situation of non-compliance by increasing the amount of revenue due that is foregone, and the value of the tax measure has increased subsequent to the adoption of the DSB recommendations and rulings (a factor that the European Union argues is relevant to the "timing" element of the close nexus test).120
7.25.
Brazil argues that, while it supports a "broad approach" to determining the scope of Article 21.5 proceedings, any such approach must ensure that compliance panels not be used as a forum for a complaining Member to re-litigate issues relating to measures that were not found to be inconsistent with a covered agreement in the original proceedings or as a forum for the remand of matters that could have been (but were not) taken up by the Appellate Body in response to a request to complete the analysis.121 Compliance proceedings should not unfairly give complainants a "second bite of the apple".122 However, Brazil considers that, with respect to claims that were not definitively resolved in the original proceeding, a distinction may need to be made between matters for which the Appellate Body was asked to fully consider the issues but was unable to complete its analysis, and matters for which the complaining party did not seek full consideration.123
7.26.
Canada considers that, as a general proposition, a complainant is prohibited from re‑litigating matters that were decided and lost on the merits in the original proceedings.124 Specifically, claims in which the complainant did not establish a prima facie case, or where there was a finding of WTO-consistency are outside the scope of compliance proceedings.125 However, Canada also considers that claims should not be excluded where the original panel or Appellate Body exercised judicial economy, or was unable to complete the analysis.126 In either situation, the merits of the claim have not been decided and the respondent should thus not have an expectation of finality of the decision.127
7.27.
Japan, while noting that the scope of Article 21.5 proceedings is not limited to a measure declared by the implementing Member to be a measure taken to comply, submits that the scope of claims that may be raised is not "unbounded". Japan takes the general position that allowing re‑litigation of issues that were the subject of the original proceedings, or otherwise providing the complainant with an "unfair second chance", should be avoided.128 Like Canada, Japan points to the specific situation of a complainant failing to establish a prima facie case, or a finding of WTO consistency, as examples of situations in which claims are outside the scope of compliance proceedings.129
7.28.
Korea points out that Article 21.5 of the DSU operates to provide a prompt and efficient forum for addressing any claims that were not, for whatever reason, finally resolved in the original proceedings.130 Korea emphasizes in particular that the requirement of "unconditional acceptance" of a panel or Appellate Body report only precludes a party from re-litigating those issues that were "actually addressed" and "finally decided by the panel or Appellate Body".131

7.2.1.2 Evaluation by the Panel

7.29.
The United States' requests raise the question of whether each of the four original Washington tax measures is within the scope of this compliance proceeding, notwithstanding that there were no DSB-adopted recommendations and rulings in relation to these measures in the original proceeding.
7.31.
In EC – Bed Linen (Article 21.5 – India), the original panel found that the complaining party had failed to make a prima facie case with respect to its challenge to an element of a measure that remained unchanged in the compliance proceeding. The complaining party had not appealed the panel's finding that it had failed to make a prima facie case, and that finding formed part of the panel report adopted by the DSB. In those circumstances, the complaining party could not raise the same claim against the same aspect of the implementation measure in the compliance proceeding.135
7.32.
The Appellate Body has also referred to the "due process concerns" if a complaining party were provided, through an Article 21.5 proceeding, an unfair "second chance" to make a case it had failed to make in the original proceedings, in a manner that would compromise the finality of the DSB recommendations and rulings.136
7.33.
However, the Appellate Body has permitted complaining parties in compliance proceedings to reassert claims against aspects of measures where such claims were unsuccessfully asserted in the original proceeding. It appears to us that the Appellate Body has done so in situations where the finality of the DSB recommendations and rulings would not thereby be compromised. Thus, a complaining party in a compliance proceeding was able to reassert claims against aspects of measures that were unchanged from those unsuccessfully challenged in the original proceedings, where the original panel had exercised judicial economy with respect to one challenged aspect of an original measure, that aspect had become an integral part of the measure taken to comply, and the challenge was to that same aspect of the measure taken to comply.137 The Appellate Body distinguished this situation from one in which the complaining party had been unsuccessful in the original proceedings, either because that aspect of the measure had been found WTO-consistent, or the complaining party had failed to make out a prima facie case.
7.34.
Similarly, a complaining party in a compliance proceeding was permitted to challenge the same aspect of a measure taken to comply that it had unsuccessfully challenged on appeal in the original proceeding owing to a reversal of the panel's finding by the Appellate Body in favour of the complaining party, but an inability of the Appellate Body to complete the analysis due to insufficient factual findings or undisputed facts on record.138
7.36.
We also recall that Article 3.3 of the DSU sets forth the principle that the prompt settlement of disputes is essential to the effective functioning of the WTO. The Appellate Body has stated that: "the aim of Article 21.5 of the DSU is to promote the prompt compliance with DSB recommendations and rulings and the consistency of 'measures taken to comply' with the covered agreements by making it unnecessary for a complainant to begin new proceedings and by making efficient use of the original panellists and their relevant experience."139
7.37.
The United States argues that the only measures susceptible to review in compliance proceedings are original measures in respect of which there are DSB-adopted recommendations and rulings, and measures properly characterized as being measures taken to comply with the DSB recommendations and rulings (whether declared by the responding party or "undeclared"). The United States says that in Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body defined the phrase "measures taken to comply" in Article 21.5 of the DSU in a manner which logically prevents original measures from falling within the scope of a compliance proceeding under Article 21.5 of the DSU.
7.38.
In Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body said:

Proceedings under Article 21.5 do not concern just any measure of a Member of the WTO; rather, Article 21.5 proceedings are limited to those "measures taken to comply with the recommendations and rulings" of the DSB. In our view, the phrase "measures taken to comply" refers to measures which have been, or which should be, adopted by a Member to bring about compliance with the recommendations and rulings of the DSB. In principle, a measure which has been "taken to comply with the recommendations and rulings" of the DSB will not be the same measure as the measure which was the subject of the original dispute, so that, in principle, there would be two distinct and separate measures: the original measure which gave rise to the recommendations and rulings of the DSB, and the "measures taken to comply" which are – or should be – adopted to implement those recommendations and rulings.140

7.39.
In explaining the meaning of the phrase "measures taken to comply", in the above‑referenced passage from its report in Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body did not set forth a definitive list of measures that may properly be considered to be within the scope of proceedings brought under Article 21.5 of the DSU. Rather, the Appellate Body's statement that in principle, a measure taken to comply will not be the same as the measure challenged in the original proceeding, explained why the panel, in reviewing the consistency of the implementation measure in that compliance proceeding, was not confined to examining its consistency with the relevant provisions of the WTO agreements from the perspective of the reasoning adopted by the original panel when it had reviewed the original measure and found it to be WTO-inconsistent. The Appellate Body found that the proceedings in question in that case involved the consistency of the revised programme (i.e. a new measure) with Article 3.1(a) of the SCM Agreement.141 The Appellate Body sought to explain why, in compliance proceedings where the measure at issue is a new measure, the compliance panel should not confine its analysis of the consistency with the covered agreements of the measures taken to comply to the perspective of the claims, arguments and facts that related to the original measure.142
7.40.
As the European Union observes, the Appellate Body has also indicated that the scope of Article 21.5 proceedings includes disagreements as to the existence of measures taken to comply, including situations where the responding party has failed to adopt implementing measures.143 In other words, Article 21.5 proceedings clearly encompass situations in which the responding party arguably should have revised an original measure, even if it did not. That being so, it is difficult to sustain the United States' argument that an original measure is, logically and by definition, outside the scope of a compliance proceeding.
7.41.
In our view, the relevant issue is not whether original measures are per se outside the scope of a compliance proceeding because original measures not the subject of DSB recommendations and rulings can never logically be measures taken to comply. Rather, the issue is in which circumstances a complaining party may, in a compliance proceeding, pursue claims against original measures that it had pursued in the original proceedings. The answer depends on the way in which the claim against the particular original measure was resolved in the original proceeding. More specifically, as we have explained in paragraph 7.35 above, a panel should consider whether the original measure was "unsuccessfully" challenged on the merits in the original proceeding, such that it cannot be raised again without compromising the finality of the DSB recommendations and rulings.144
7.42.
Accordingly, in determining whether the European Union may reassert claims against any of the four original Washington tax measures in this proceeding, we will examine the status of the claims in respect of those measures at the conclusion of the original proceedings. If there was a positive finding that the particular measure was "not inconsistent" with the challenged provision of the covered agreements, then on the basis of EC – Bed Linen (Article 21.5 – India), the European Union would be precluded from reasserting the same claims against the such measures in this proceeding. This is because to allow it to do so would compromise the finality of the DSB recommendations and rulings.
7.43.
We begin by recalling that all four original Washington tax measures were found by the panel in the original proceeding to be specific subsidies.145 None of these findings was disturbed on appeal. Although the original panel found that none of the four original Washington tax measures caused serious prejudice, these findings were reversed on appeal owing to faults that the Appellate Body found with aspects of the panel's assessment of serious prejudice. We set forth in some detail below how the Appellate Body's modification of the panel's reasoning, in the context of the three LCA product markets at issue, ultimately affected whether any of the four original Washington tax measures could be definitively considered not to have caused serious prejudice in any of the LCA product markets. Based on those conclusions, we then determine whether a consideration of the same measures in this proceeding would compromise the finality of the DSB recommendations and rulings.
7.44.
The European Communities argued in the original proceeding that the Washington State B&O tax credits for preproduction/aerospace product development, the Washington State B&O tax credit for property taxes and the Washington State sales and use tax exemptions for computer software, hardware, and peripherals, as "untied" subsidies, operated to increase Boeing's non‑operating cash flow.146 The panel found that these subsidies, when aggregated with the other subsidies that operated to increase Boeing's non-operating cash flow, were of an insufficient magnitude to have had any appreciable impact on Boeing's LCA prices, and thus on sales or prices of Airbus LCA.147 Therefore, at the panel stage, none of those three Washington tax measures was found to cause serious prejudice in any LCA product market.
7.45.
The European Communities further argued that the City of Everett B&O tax rate reduction, as a subsidy that was tied on a per-unit basis to the production or sale of LCA manufactured in Everett (and therefore applied to the 777 and 787 families of LCA), operated to reduce Boeing's marginal unit costs of production and sale of LCA.148 The panel found that the effect of the City of Everett B&O tax rate reduction (when aggregated with the other tied tax subsidies that operated to reduce Boeing's marginal unit costs, i.e. the FSC/ETI subsidies and the Washington State B&O tax rate reduction) was significant price suppression, significant lost sales, and displacement and impedance of exports in the 300-400 seat LCA product market. The panel declined to aggregate the effects of the tied tax subsidies (i.e. the Washington State and City of Everett B&O tax rate reductions, since FSC/ETI did not apply to 787 sales) with those of the aeronautics R&D subsidies in the 200-300 seat LCA product market on the basis that the tied tax subsidies and the aeronautics R&D subsidies operated through distinct causal mechanisms.149 Considered separately from the effects of the aeronautics R&D subsidies in the 200-300 seat LCA product market, the effects of the City of Everett B&O tax rate reduction (and the Washington State B&O tax rate reduction) would not have had such an effect on Boeing's 787 pricing as to cause serious prejudice to Airbus in the 200‑300 seat LCA product market. Thus at the panel stage, the City of Everett B&O tax rate reduction was found to have caused serious prejudice in the 300-400 seat LCA product market, but not in the 200-300 seat LCA product market.
7.46.
On appeal, the Appellate Body first dealt with the United States' appeals of the panel's findings that: (a) the FSC/ETI subsidies and Washington State B&O tax rate reduction caused serious prejudice in the 100-200 seat LCA product market; and (b) the FSC/ETI, Washington State B&O tax rate reduction and City of Everett B&O tax rate reduction caused serious prejudice in the 300‑400 seat LCA product market. The Appellate Body reversed the panel's findings on the ground that the panel had not provided a proper legal basis for them.150 It then attempted to complete the analysis with the following results:

a. the FSC/ETI subsidies and Washington State B&O tax rate reduction, in two LCA sales campaigns, caused serious prejudice in the 100-200 seat LCA product market151;

b. it was not possible to complete the analysis of the effects of the FSC/ETI subsidies, Washington State B&O tax rate reduction and City of Everett B&O tax rate reduction in the 300-400 seat LCA product market because the panel had not engaged with the evidence concerning the "other factors" that the United States alleged had attenuated the causal link between the subsidies and the adverse effects.152

7.47.
The Appellate Body then dealt with the European Union's appeals.153 In short, it reached the following outcomes:

a. As to the European Union's appeal that the panel failed to assess collectively the effects of the Washington State and City of Everett B&O tax rate reductions with the effects of the aeronautics R&D subsidies:

i. The panel erred in failing to consider whether the price effects of the Washington State and City of Everett B&O tax rate reductions could be cumulated with (i.e. complemented and supplemented) the technology effects of the aeronautics R&D subsidies in causing serious prejudice in the 200-300 seat LCA product market. The European Union did not request completion of the analysis on this issue.154

b. As to the European Union's appeal that the Panel failed to assess collectively the effects of the tied tax subsidies and the effects of the untied subsidies (including the first three original Washington tax measures listed in paragraph 7.11 above):

i. The panel erred in failing to consider whether the effects of the "untied" subsidies (including the first three original Washington tax measures listed in paragraph 7.11 above) could be cumulated with (i.e. complemented and supplemented) the price effects of the tied tax subsidies in the 100-200 seat LCA product market.155 On completing the analysis for the 100-200 seat LCA product market (which was the only LCA product market in which the Appellate Body had found the tied tax subsidies caused adverse effects, because it had been unable to complete the analysis in the 300-400 seat LCA product market), the Appellate Body found:

ii. neither the Washington State B&O tax credits for preproduction/aerospace product development, nor the Washington State sales and use tax exemptions for computer software, hardware, and peripherals appeared to be received in connection with expenditures related to the 737NG and thus did not have effects in the 100-200 seat LCA product market156;

iii. as the European Union's submissions revealed that the Washington State B&O tax credit for property taxes benefits only the 787, the Appellate Body did not attempt to cumulate the effects of this subsidy with the effects of the tied tax subsidies in the 100-200 seat LCA product market.157

7.48.
In sum, at the conclusion of the original proceeding, as a result of the Appellate Body's reversal of various panel findings, its completion of the analysis in some instances and its inability to complete the analysis in others (or the failure of the European Union to request completion of the analysis), none of the four original Washington tax measures was found to cause serious prejudice to the European Union's interests, within the meaning of Articles 5(c), 6.3(b), and 6.3(c) of the SCM Agreement.
7.49.
Although none of the four original Washington tax measures was found to cause serious prejudice at the conclusion of the original proceedings, in many cases, this was because the Appellate Body did not complete the analysis fully for all relevant LCA product markets, either because it was unable to, or because it was not requested to do so. It was not because the four original Washington tax measures were adjudged on the merits, for all of the relevant LCA product markets, not to have caused serious prejudice.
7.50.
In fact, had the Appellate Body been able to complete the analyses, it was potentially open for it to have found that the City of Everett B&O tax rate reduction, the Washington State B&O tax credits for preproduction/aerospace product development and the Washington State sales and use tax exemptions for computer software, hardware, and peripherals, caused serious prejudice.158 The only original Washington tax measure that arguably may not have been found to have caused serious prejudice on the basis of the Appellate Body's ruling is the Washington State B&O tax credit for property taxes. This B&O tax credit (which was part of the group of "untied" or "remaining" subsidies) benefited only the 787 and thus, applying the Appellate Body's reasoning, would only potentially have had effects in the 200-300 seat LCA product market.159 The European Union did not allege that the panel erred in not collectively assessing (whether by "aggregation" or "cumulation") the effects of the "untied" subsidies with the aeronautics R&D subsidies.160
7.51.
As explained above, the Appellate Body overruled the panel's approach to assessing whether the four original Washington tax measures listed in paragraph 7.11 above caused serious prejudice, but could not complete the analyses. Therefore, the Appellate Body did not find that, for every possible LCA product market, the European Union had failed to demonstrate that the measures caused serious prejudice. Thus, at the conclusion of the appeal process, there cannot be said to be findings that any of the four original Washington tax measures was "not inconsistent" with Articles 5(c) and 6.3 of the SCM Agreement for all LCA product markets.
7.52.
In the particular circumstances of the outcome of the European Communities' original serious prejudice claims against these measures, and particularly the fact that the European Union successfully appealed the panel's failure to collectively assess the effects of the tied tax subsidies with the aeronautics R&D subsidies, and the effects of the untied subsidies with the tied tax subsidies, we consider that the reassertion of claims in respect of the original Washington tax measures would not compromise the finality of the DSB recommendations and rulings, or amount to an unfair second chance.161
7.53.
On the basis of the foregoing, we consider that the European Union is not precluded from reasserting claims in respect of the four original Washington tax measures in this compliance proceeding. The Panel therefore rejects the United States' requests for rulings that the four original Washington tax measures are outside the scope of this compliance proceeding.

7.2.2 Whether the Washington State Joint Center for Aerospace Technology Innovation measure is outside the scope of this proceeding

7.54.
In its panel request, the European Union makes claims in respect of the establishment by the State of Washington and its political subdivisions of a Joint Center for Aerospace Technology Innovation (JCATI) which it alleges is a specific subsidy to Boeing. The United States argues that the JCATI is not a declared measure taken to comply, nor does it share a close nexus to a declared measure taken to comply or to the DSB recommendations and rulings.162 Accordingly, the United States considers that this measure is outside the scope of this proceeding and requests a preliminary ruling to that effect.163

7.2.2.1 Main arguments of the parties and third parties

7.55.
The United States disputes the contention that the JCATI shares a close nexus with the Washington State B&O tax rate reduction: First, the European Union's unsupported assertion that the purpose of both measures is to convince Boeing to expand production in Washington says nothing about the nature of these two very different types of measures.164 It is difficult to conceive how a programme developed to foster the education of engineering students is akin to the reduction of a B&O tax rate.165 Second, in relation to the European Union's argument that both the JCATI and Washington State B&O tax rate reduction have the effect of reducing Boeing's costs of doing business in Washington State, the European Union fails to articulate a coherent theory as to how such effects would occur.166 Moreover, the JCATI activities do not operate to negate the removal of any adverse effects relating to the Washington State B&O tax rate reduction.167
7.56.
As to the European Union's arguments concerning the alleged nexus with the NASA and DOD aeronautics R&D measures subject to the DSB recommendations and rulings, the United States argues that the JCATI does not function like, and its activities are not similar in any meaningful way to, the measures administered by NASA and DOD.168 Unlike the NASA and DOD aeronautics R&D measures, the JCATI coordinates the development of higher education aerospace programmes at the University of Washington and Washington State University. Its activities with industry are structured differently from those under the NASA and DOD aeronautics R&D measures; for example, JCATI funding is allocated to projects by educational institutions, not participating parties.169 As to the alleged links in terms of effects, NASA awards contracts to outside entities in order to obtain research into new scientific principles while the European Union asserts that Boeing will be able to use technology developed through the JCATI to further its own LCA-related research.170
7.57.
The European Union argues that the JCATI measure constitutes a measure taken to comply, within the scope of this proceeding, based on its close nexus with "the other Washington State subsidies subject to the DSB's recommendations and rulings", as well as with the "NASA and DOD aeronautics R&D subsidies subject to those recommendations and rulings".171 As to the links in terms of nature, the European Union makes the following arguments:

a. the JCATI shares the same purpose as the Washington State B&O tax rate reduction; namely, to convince Boeing to retain and expand its production in Washington State by lowering Boeing's cost of doing business in the State. Just like the Washington State B&O tax rate reduction, the JCATI's subsidies are limited to enterprises in the aerospace industry172; and

b. the JCATI has the same nature as the NASA and DOD aeronautics R&D subsidies subject to the DSB recommendations and rulings because it supports Boeing's LCA-related R&D efforts and contributes to Boeing's development of, and access to, LCA-related technology.173 Even where funding goes directly to the educational institutions involved, participating enterprises such as Boeing nevertheless receive direct support from the funded projects, and technologies owned by the universities are advanced in part through R&D funding provided through NASA's aeronautics R&D programmes and DOD's RDT&E Program.174

7.58.
The European Union argues that the effects of the JCATI measure are to worsen the existing situation of non-compliance regarding the Washington State B&O tax rate reduction and the NASA and DOD aeronautics R&D subsidies by expanding the adverse effects caused by such subsidies during the new reference period.175 The JCATI measure undermines compliance with the DSB recommendations and rulings by enabling Boeing to use the technologies and research developed through JCATI to further its own LCA-related research without paying anything in return for such goods, services and grants and by lowering Boeing's costs of doing business in Washington State.
7.59.
As to timing, the European Union notes that the JCATI issued its first round of grant awards in February 2013, which is after the date of the DSB recommendations and rulings (23 March 2012).
7.60.
Brazil considers that an Article 21.5 panel is not confined solely to examining declared measures taken to comply.176 Where an "undeclared" measure has a sufficiently close relationship to a declared measure taken to comply, and to the DSB recommendations and rulings, it may be within the scope of Article 21.5 compliance proceedings.177 This requires a panel to "scrutinize the links, in terms of nature, effects, and timing" between the respective measures.178 Brazil considers that while an "undeclared" measure must share more than "some features" with the original measure to be considered within the scope of Article 21.5, an overly narrow approach to an Article 21.5 panel's terms of reference could undermine the effectiveness of the dispute settlement process.179
7.61.
Canada considers that it is essential to the prompt settlement of disputes to include in the scope of Article 21.5 compliance proceedings those measures that have a "sufficiently close relationship" in "timing, nature and effects" with the declared measures taken to comply, and the DSB recommendations and rulings.180 To do otherwise would allow a respondent to evade compliance with rulings and recommendations of the DSB.181
7.62.
Japan considers that in order to ensure full compliance and prevent circumvention, certain "undeclared" measures taken to comply may also be included in the scope of compliance proceedings. These are those "undeclared" measures that virtually replace the declared measure taken to comply or that have "close links particularly in terms of their 'timing, nature and effects'" with the declared measures.182

7.2.2.2 Evaluation by the Panel

7.63.
The Joint Center for Aerospace Technology is an aerospace office created and funded by the State of Washington since July 2012. Its statutory purposes are to:

a. pursue joint industry-university research in computing, manufacturing, efficiency, materials/structures innovation, and other new technologies that can be used in aerospace firms;

b. enhance the education of students in the engineering departments of the University of Washington, Washington State University, and other participating institutions through industry-focused research; and

c. work directly with existing small, medium-sized and large aerospace firms and aerospace industry associations to identify research needs and opportunities to transfer off‑the‑shelf technologies that would benefit such firms.183

7.64.
The JCATI is operated and administered as a multi-institutional education and research center, conducting research and development programmes in various locations within Washington under the joint authority of the University of Washington and Washington State University. The JCATI is administered by a Board of Directors appointed by the Governor with voting members as follows: one voting member each representing small aerospace firms, medium-sized firms, large aerospace firms, and labor; and two voting members each, representing aerospace industry associations and higher education. The Board is directed to work with aerospace industry associations and aerospace firms of all sizes to identify the research areas that will benefit the intermediate and long-term economic viability of the Washington aerospace industry.184 In February 2013, the JCATI announced that it had awarded 16 projects a total of USD 1.24 million to solve technological questions important to the aerospace industry in its first round of grant awards.185 Six of those projects involved Boeing (partnering with Washington University with respect to three and Washington State University with respect to three).186
7.65.
The parties appear to agree that whether the JCATI measure is within the scope of this compliance proceeding depends upon whether it meets the requirements of the close nexus test and thus constitutes an "undeclared" measure taken to comply.
7.66.
We recall that the close nexus test represents an attempt by panels and the Appellate Body to balance the competing interests of (a) providing a responding party with a reasonable period of time to bring its measures into conformity prior to authorization for retaliation, with (b) the efficient working of the dispute settlement system, and the importance of meaningful compliance. In striking this balance, the close nexus test looks to see whether "undeclared" measures have a "particularly close relationship" to the declared measure taken to comply, and to the DSB recommendations and rulings, such that they are susceptible to review by a compliance panel.187 Compliance panels "scrutinize these relationships", which may, depending on the particular facts, call for an examination of the timing, nature, and effects of the various measures, as well as an examination of the "factual and legal background" against which a declared measure taken to comply is adopted. The task of a compliance panel is to determine whether there are "sufficiently close links" to be able to characterize the "undeclared" measure as being one "taken to comply" and consequently, for the panel to assess its consistency with the covered agreements in an Article 21.5 proceeding.188 The focus or purpose of the exercise is to ascertain whether measures other than original measures, or the responding party's declared compliance actions, would in practical terms undermine or nullify the purported compliance actions with the result that a panel could not meaningfully undertake an assessment of whether there has been compliance without also considering those "undeclared" measures.
7.68.
Application of the close nexus test by previous panels and the Appellate Body provides some guidance as to the sufficiency of the links necessary in order to satisfy the close nexus test and conclude that the measure is within the scope of a compliance proceeding. We briefly discuss below the previous cases in which an "undeclared" measure was considered sufficiently closely linked to either the DSB recommendations and rulings, or to declared implementation actions taken by the responding party, that it was considered within the scope of the compliance proceeding.
7.69.
The close nexus test was first articulated by the Appellate Body in US – Softwood Lumber IV (Article 21.5 – Canada) in referring with approval to the approach taken by compliance panels in two earlier cases.189 In the first of those, Australia – Salmon (Article 21.5 – Canada), the compliance panel was required to determine whether Australia had complied with the DSB recommendations and rulings adopted in November 1999 regarding import restrictions on salmonid products that had been maintained through a federal quarantine proclamation. Australia announced changes to its quarantine policy in July 1999, these being measures that Australia considered brought it into full compliance with the DSB recommendations and rulings. However, in October 1999, the State of Tasmania adopted an import ban applying to the product at issue.190 The compliance panel considered that, in the context of this dispute, at least any quarantine measure introduced by Australia subsequent to the adoption of the DSB recommendations and rulings, and within a more or less limited time thereafter, that applied to imports of fresh chilled or frozen salmon from Canada, was a measure taken to comply within the mandate of the compliance panel.191
7.70.
The second, Australia – Automotive Leather II (Article 21.5 – US), concerned compliance with a DSB recommendation pursuant to Article 4.7 of the SCM Agreement, adopted in June 1999, that Australia withdraw subsidies found to be contingent on export performance, within the meaning of Article 3.1(a) of the SCM Agreement. The subsidies in question were payments under a grant contract between the Government of Australia, a recipient company and its parent company. Australia notified the DSB that it had complied with the DSB recommendations and rulings in September 1999, by requiring the recipient company to repay to the Australian Government an amount that covered any remaining WTO-inconsistent portion of the grants made under the grant contract and terminating all subsisting obligations under the grant contract. On the day after the company had repaid the prospective portion of the grant, Australia announced that it was providing a loan to the recipient's parent company, which was conditioned on the repayment of the original subsidy. The United States challenged the new loan in the compliance proceeding on the basis that it was simply a reimbursement of the non-commercial terms of the purported withdrawal of the prospective portion of the grant that was repaid by the company. The panel considered that the loan was "inextricably linked" to the steps taken by Australia to comply with the DSB recommendation, in view of both its timing and nature. The panel further reasoned that it could not exclude the loan from its consideration without severely limiting its ability to judge, on the basis of the U.S. panel request, whether Australia had taken measures to comply with the DSB recommendations and rulings.192
7.71.
The compliance proceeding in US – Softwood Lumber IV (Article 21.5 – Canada), involved a pass-through analysis used by USDOC in a First Assessment Review of a Final Countervailing Duty Determination calculating the rate of subsidization of softwood lumber from Canada (the "undeclared" measure). The declared measure taken to comply was a Section 129 Determination which replaced the Final Countervailing Duty Determination, and thereby became the basis for the continued imposition of countervailing duties. The USDOC adopted the same pass-through analysis in the First Assessment Review and in the Section 129 Determination. The panel found that the pass-through analysis in the First Assessment Review was so "inextricably linked" and "clearly connected" to both the Section 129 Determination and the Final Countervailing Duty Determination as to fall within the scope of the compliance proceeding. The United States objected, noting that the Section 129 Determination (and the Final Countervailing Duty Determination that it revised) considered the existence and amount of subsidization in the original period of investigation, while the First Assessment Review was concerned with the amount of subsidization in a different period of review. Moreover, Section 129 proceedings and assessment reviews had different legal consequences, and the First Assessment Review was requested eight months before the adoption of the panel and Appellate Body reports in the original proceeding. The Appellate Body rejected the U.S. arguments. Rather, the Appellate Body considered the links between the "undeclared" measure, the declared measure taken to comply, and the DSB recommendations and rulings in terms of "subject matter", "timing", and "effects" and upheld the panel's finding that the First Assessment Review, insofar as the pass-through analysis was concerned, fell within the scope of the compliance proceeding.193
7.72.
The Appellate Body next applied the close nexus test in the context of determining whether the United States had complied with the DSB recommendations and rulings regarding the methodology of zeroing. In US – Zeroing (EC) (Article 21.5 – EC), the Appellate Body considered the extent to which subsequent reviews that followed 15 original anti-dumping investigations and 16 administrative reviews in the original proceeding fell within the scope of the compliance proceeding. The panel had ruled that only the subsequent reviews that came into effect after the adoption of the DSB recommendations and rulings had a sufficiently close nexus with the original measures at issue and the DSB recommendations and rulings so as to come within the scope of the compliance proceeding.194 The European Communities appealed the panel's conclusion regarding the timing factor and exclusion of the other subsequent reviews. The Appellate Body stated that the timing of a measure is not determinative of whether it bears a sufficiently close nexus with a Member's implementation of DSB recommendations and rulings so as to fall within the scope of a compliance proceeding. As compliance can be achieved before the adoption of DSB recommendations and rulings, a compliance panel may have to review events pre‑dating the adoption of those recommendations and rulings.195 While the timing of a measure was a relevant factor to consider in determining whether it is sufficiently closely connected to a Member's implementation of the DSB recommendations and rulings, the panel's formalistic reliance on the date of issuance of subsequent reviews in determining whether they had the requisite close nexus with the DSB recommendations was found to be in error.196
7.73.
The Appellate Body then examined whether any of the excluded subsequent reviews fell within the scope of the compliance proceeding based on a consideration of the links, in terms of nature and effects, between those measures, the declared measures taken to comply and the DSB recommendations and rulings.197 It concluded that, with respect to the administrative reviews that had replaced assessment rates and cash deposit rates found to be WTO-inconsistent in the original proceeding with assessment rates and cash deposit rates that continued to reflect the zeroing methodology, there was a sufficient link, in terms of effects, with the DSB recommendations and rulings.198 Similarly, the sunset review determinations that led to the continuation of the relevant anti-dumping duty orders (which in turn provided the legal basis for the continued imposition of assessment rates and cash deposit rates calculated with zeroing in subsequent administrative reviews) and which had continued effects after the end of the reasonable period of time, had a sufficiently close link in terms of effects with the DSB recommendations and rulings.199
7.74.
Stepping back from the specific facts of these cases, the close nexus test appears to be fundamentally directed to the question of whether, in the specific factual and legal context of the case, it would be feasible for a panel to undertake to determine whether the responding party has complied with the DSB recommendations and rulings without taking into account these "undeclared" measures. Thus, in Australia – Salmon, it made no sense to examine whether Australia had complied with the DSB recommendations and rulings by amending its federal quarantine regulations if the compliance panel had not taken into account the fact that the state of Tasmania had imposed its own import ban very shortly thereafter. Similarly, the compliance panel in Australia – Automotive Leather II (Article 21.5 – US) could not sensibly have determined whether Australia had complied with the DSB recommendations and rulings by requiring the recipient to repay the grant if it had ignored the fact that the next day, a loan in a similar amount that expressly made reference to repayment of the grant had been granted to the recipient's parent company.
7.75.
Although the cases involving compliance in the context of the United States' retrospective system for assessing anti-dumping and countervailing duties are complex technically, the key issue in those cases seems to be that, whatever the technical legal distinctions between original determinations and assessment reviews, if at the end of the day there would be duties imposed that reflected the WTO-inconsistency (e.g. zeroing or an impermissible pass-through methodology), the measures in question should be considered by the compliance panels, because to ignore this factor would mean that the complaining party may not truly receive the relief that it could be expected to receive in bringing its complaint and succeeding on that complaint in the original proceeding. Indeed, in these cases, a failure to take into account subsequent reviews would mean that, by the time the compliance proceeding was completed, the WTO-inconsistent reviews of a given anti-dumping or countervailing duty order would have been superseded by new reviews using the same WTO-inconsistent methodologies with respect to the same order.
7.76.
We are not persuaded that the European Union has demonstrated that the JCATI measure shares sufficiently close links in terms of nature or effects, with the Washington State B&O tax rate reduction, or with the NASA and DOD aeronautics R&D subsidies subject to the DSB recommendations and rulings, to warrant its inclusion within the scope of this proceeding as an "undeclared" measure taken to comply.
7.77.
The Washington State B&O tax rate reduction, enacted under HB 2294, is a reduction in the B&O tax rate for manufacturers of commercial airplanes or components of such airplanes, which was to occur in two stages from October 2005 to July 2007, or at the commencement of final assembly of a super‑efficient airplane, whichever was later.200 The B&O tax rate reduction was considered in the original proceeding to be a "tied" subsidy as it applies to the production and sale of each LCA manufactured in Washington State on a per-unit basis, increasing Boeing's after‑tax revenue and profitability.201 The JCATI measure, by contrast, is a joint industry‑university research programme that seeks to pursue focused research of relevance to the aerospace industry and enhance the education of students in engineering departments of educational institutions in the State of Washington. The fact that both measures concern enterprises in the aerospace industry in the State of Washington is insufficient, in our view, to demonstrate a close nexus in terms of nature.
7.78.
We also regard the JCATI measure as being insufficiently closely linked to the NASA procurement contracts and Space Act Agreements and DOD assistance instruments the subject of the DSB recommendations and rulings. These measures are multi-year R&D instruments that operated as collaborative research projects between NASA and DOD, respectively, funded through specific NASA and DOD aeronautics R&D programmes.202 The JCATI measure will coordinate the development of higher-education aerospace programmes at certain universities in the State of Washington. As such, it appears to be significantly qualitatively different from the NASA and DOD aeronautics R&D measures the subject of the DSB recommendations and rulings. There is nothing before us to suggest that the JCATI will continue or develop R&D conducted under the NASA and DOD aeronautics R&D programmes, or that the JCATI replaces or replicates the NASA and DOD aeronautics R&D measures the subject of the DSB recommendations and rulings in a way that requires that the measure be included within the scope of this proceeding in order to enable the Panel to make a meaningful determination as to whether the United States has complied with the DSB recommendations and rulings.
7.79.
The JCATI measure is not a declared measure taken to comply, nor has it been demonstrated to have a sufficiently close connection to a declared measure taken to comply, or to the DSB recommendations and rulings, to fall within the scope of this proceeding as an "undeclared" measure taken to comply. The Panel therefore grants the United States' request and rules that the JCATI measure is outside the scope of this proceeding.
7.80.
In this Section of the Report, the Panel therefore finds that the following Washington tax measures, which were the subject of a request for preliminary rulings by the United States, are within the scope of this proceeding:

a. Washington State B&O tax credits for preproduction/aerospace product development, as amended by section 7 of SSB 6828;

b. Washington State B&O tax credit for property taxes, as amended by HB 2466 to include leasehold excise taxes;

c. Washington State sales and use tax exemptions for computer software, hardware, and peripherals; and

d. City of Everett B&O tax rate reduction.

7.81.
The Panel grants the United States' request for a preliminary ruling that the JCATI measure is outside the scope of this proceeding.203

7.3 DOD aeronautics R&D measures

7.3.1 Background

7.82.
In this Section, we address the United States' scope objections relating to the European Union's challenge to the U.S. DOD's Research, Development, Test & Evaluation (RDT&E) Program as involving specific subsidies to Boeing. By way of background, we recall that DOD's budget has historically been divided into five broad budget categories: Military Personnel; Operations & Maintenance; Procurement; Research, Development, Test & Evaluation, and Military Construction.204 The RDT&E budget category funds research, development, test, and evaluation spending by DOD, including the three military departments of DOD (United States Army, Navy, and Air Force) and other DOD agencies, towards designing and developing military systems or technology.205 The RDT&E budget category is a distinct category from "Procurement" which funds the actual acquisition costs of military systems that are in production.206
7.83.
RDT&E budget activities are subdivided into a number of program elements. DOD Financial Management Regulation explains that the "program element" is the major aggregation at which RDT&E efforts are organized, budgeted, and reviewed.207 Each program element is divided into one or more named and numbered projects, which may be further subdivided into activities.208 Each RDT&E program element has specific program objectives expressed in the "Mission Description" statement contained in the program budgets.209 Program elements are also identified by a particular "PE number" in the Future Years Defense Program (FYDP) budget estimates.210
7.84.
In its panel request in this proceeding, the European Union alleges that U.S. DOD maintains subsidies benefiting U.S. LCA producers through: (a) the RDT&E Program; as well as (b) through contracts, assistance instruments, and other agreements (as modified) entered into under the RDT&E Program; in addition to (c) specified U.S. Air Force, Navy, Army, and Defense-wide program elements of the RDT&E Program; as well as (d) contracts, assistance instruments, and other agreements (as modified) entered into under these RDT&E program elements; and (e) contracts and other agreements (as modified) with Boeing listed in annex B of the United States' 23 September 2012 notification.211 The forms of the subsidies are described as: (a) the provision to Boeing of funding and access to government facilities, equipment, and employees for R&D applicable to the development, design, and production of LCA on terms more favourable than would be available on the commercial market; as well as (b) the provision to Boeing of royalty-free use of the technologies developed with such funding and support or use of such technologies on preferential terms.212
7.85.
The European Union's first written submission divides its discussion of the particular DOD RDT&E program elements through which DOD is alleged to provide actionable subsidies to Boeing into "original" RDT&E program elements (i.e. those that were also at issue in the original proceeding), and "additional" RDT&E program elements (i.e. those which allegedly have begun to fund what the European Union identifies as "dual-use LCA-relevant research" since 2007).213
7.86.
The European Union explains that its identification and discussion of the RDT&E program elements that it considers "contribute to Boeing's LCA division" was assisted by experts, Mr Richard Rumpf and Charles River Associates (CRA).214 CRA had been engaged by the European Communities in the original proceeding to estimate the amounts of RDT&E funding received by Boeing that could be considered "dual-use" RDT&E, in the sense of R&D that was "relevant" to both military and commercial aircraft.215 Mr Rumpf was similarly engaged by the European Union in this compliance proceeding to estimate the amounts of funding provided by the DOD RDT&E Program to Boeing for fiscal years (FY) 2007 through FY 2012 "which support the development of technologies or methods that could benefit Boeing's commercial airplane division".216
7.87.
Using a similar methodology to that employed by CRA in its 2006 Report, Mr Rumpf reviewed DOD's FYDP budget estimate statements for FY 2007 through FY 2013 to determine which RDT&E program elements, and which projects and activities within those program elements, funded "general aircraft" or "science and technology" R&D "that appeared to be dual-use to LCA".217 On the basis of this analysis, Mr Rumpf identified 15 "general aircraft" RDT&E program elements, under 16 different program element numbers.218 Eight of those "general aircraft" program elements had been identified by CRA in its 2006 Report and were challenged by the European Communities in the original proceeding.219 The Rumpf Report does not identify six program elements that were identified by CRA in 2006 and which were the subject of the European Communities' claims in the original proceeding and are also being challenged by the European Union in this proceeding.220