The Compliance Appellate Body Report Was Circulated to Members
(Source: World Trade Organisation; issued March 28, 2019)
Findings regarding the measures at issue

-- USDOD procurement contracts:
The Appellate Body found that the Panel did not err in admitting the European Union's claims relating to the USDOD procurement contracts in these compliance proceedings.

The Appellate Body reversed the Panel's rejection of the European Union's claim that the USDOD procurement contracts constituted a financial contribution that conferred a benefit on Boeing, but was unable to complete the legal analysis to determine whether they involved financial contributions under Article 1.1(a)(1) of the SCM Agreement.

-- Foreign sales corporation/extraterritorial income (FSC/ETI) tax concessions:
The Appellate Body clarified that for revenue to be considered “foregone” under Article 1.1(a)(1)(ii) of the SCM Agreement, a government must relinquish an entitlement to raise revenue, and that such a determination must focus on the conduct of a government, rather than on the use of tax concessions by the eligible taxpayers.

On this basis, the Appellate Body reversed the Panel's rejection of the European Union's claim that the tax concessions at issue involved a financial contribution under Article 1.1(a)(1)(ii).

The Appellate Body completed the legal analysis and found that, to the extent that Boeing remains entitled to FSC/ETI tax concessions in the post‑implementation period, the United States has not withdrawn FSC/ETI subsidies with respect to Boeing.

-- South Carolina measures:
The Appellate Body found that, for purposes of assessing whether a subsidy has been granted to a limited number of certain enterprises under Article 2.1(c) of the SCM Agreement, the Panel erred by taking into account three specific entities in its analysis without having established that they constitute “certain enterprises”.

For purposes of examining the existence of predominant use by certain enterprises under the same provision, the Appellate Body faulted the Panel for excluding that such evidence may also be pertinent for demonstrating the granting of disproportionately large amounts of subsidy to certain enterprises.

The Appellate Body therefore reversed the Panel's rejection of the European Union's claim under Article 2.1 regarding economic development bond (EDB) subsidies, but was unable to complete the legal analysis to find that they constitute specific subsidies.

Separately, the Appellate Body considered that the explicit requirement that taxpayers be located in a multi-county industrial park (MCIP) in order to receive tax credits constituted a limitation on access to subsidies within the meaning of Article 2.2 of the SCM Agreement.

The Appellate Body therefore reversed the Panel's rejection of the European Union's claim that the MCIP subsidies is specific within the meaning of Article 2.2 and completed the legal analysis to find that they constituted specific subsidies.

-- City of Wichita industrial revenue bonds (IRBs):
The Appellate Body found that, for purposes of assessing whether disproportionately large amounts of subsidy have been granted to certain enterprises within the meaning of Article 2.1(c) of the SCM Agreement, the Panel did not err in concluding that the relevant time period over which to consider disproportionality was as from the end of the implementation period.

The Appellate Body, however, reversed the Panel's application of Article 2.1(c) in finding that no disparity existed between the expected and actual distribution of the tax abatements provided through IRBs, but was unable to complete the legal analysis to find that they constitute specific subsidies.

Findings regarding adverse effects

-- Continuing adverse effects from the original reference period:
The Appellate Body clarified that, in assessing whether appropriate steps have been taken to remove the adverse effects of a subsidy within the meaning of Article 7.8 of the SCM Agreement, the time period for assessing the removal of adverse effects may include developments subsequent to the time of order, including through the point of delivery.

The Appellate Body therefore faulted the Panel for excluding from its inquiry evidence relating to transactions where the orders arose in the original reference period but deliveries remain outstanding in the post‑implementation period. Ultimately, however, the Appellate Body agreed with the Panel that the European Union's arguments were unsupported by the evidence and/or in contradiction with the findings made in the original proceedings, and therefore upheld the Panel's finding rejecting the European Union's claim that the original adverse effects of the pre-2007 aeronautics R&D subsidies continue into the post‑implementation period as present serious prejudice in relation to the A330 and A350XWB.

-- Technology effects of US aeronautics R&D subsidies:
The Appellate Body considered that the counterfactual inquiry in these compliance proceedings was different from the one at issue in the original proceedings, and faulted the Panel for failing to assess in its counterfactual analysis whether the acceleration effects of the pre‑2007 aeronautics R&D subsidies had an impact, not just on the launch of the 787, but also on the timing of first delivery of the 787 (both in terms of promised as well as actual first delivery).

The Appellate Body therefore reversed the Panel's rejection of the European Union's claim, but was unable to complete the legal analysis with regard to whether there remain acceleration effects of the pre-2007 aeronautics R&D subsidies in the post‑implementation period.

-- Price effects of the “tied tax” Washington State business and occupation (B&O) tax rate reduction:
The Appellate Body agreed that the Panel had a basis to assume that Boeing was able to use the benefits of the subsidies arising from all its LCA sales to lower prices in particularly price‑sensitive sales campaigns in the single‑aisle LCA market, and that the Panel was not required to establish that the per‑aircraft amount of the subsidies available for these sales campaigns exceeds the differentials in the net prices of Airbus' and Boeing's competing aircraft.

The Appellate Body therefore upheld the Panel's finding that a Washington State B&O tax rate reduction caused significant lost sales, and a threat of impedance, in relation to five particularly price-sensitive campaigns in the single-aisle LCA market. The Appellate Body also upheld the Panel's rejection of any such effects in sales campaigns that were not particularly price sensitive in the single-aisle and twin-aisle LCA markets.

-- Price effects of the “untied” cash flow subsidies:
The Appellate Body clarified that the legal standard for causation under Articles 5 and 6.3 of the SCM Agreement does not require a showing that the cash flow subsidies (including certain federal, state, and local measures) actually altered Boeing's pricing of its LCA.

The Appellate Body therefore reversed the Panel's finding that the European Union was required to demonstrate that the untied subsidies actually led to price reductions of Boeing LCA sales in order to establish that the subsidies caused adverse effects through the lowering of Boeing LCA prices.

However, the Appellate Body was unable to complete the legal analysis to find that any of these subsidies complemented and supplemented the effects of the Washington State B&O tax rate reduction by contributing to such adverse effects in the single‑aisle LCA market.


Click here for the full Appellate Body report (181 PDF pages)


Click here for a summary of the conclusions and findings (9 PDF pages)

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