United
States – Conditional Tax Incentives for Large Civil Aircraft
Report of the Panel
Addendum
This addendum
contains Annexes A to D to the Report of the Panel to be
found in document WT/DS487/R.
_______________
LIST OF ANNEXES
ANNEX A
Working
Procedures of The Panel
|
Contents
|
Page
|
|
Annex A-1
|
Working Procedures of the Panel
|
A-2
|
|
Annex A-2
|
Additional
Working Procedures on BCI and HSBI
|
A-7
|
|
Annex A-3
|
Additional
Working Procedures for the partial opening to the public of the meeting of
the panel
|
A-19
|
|
Annex A-4
|
Additional
Working Procedures for the partial opening to the public of the second
meeting of the panel
|
A-21
|
ANNEX B
Arguments
Of The Parties
|
Contents
|
Page
|
|
Annex B-1
|
First
integrated executive summary of the arguments of the European Union
|
B-2
|
|
Annex B-2
|
Second
integrated executive summary of the arguments of the European Union
|
B-10
|
|
Annex
B-3
|
First
integrated executive summary of the arguments of the United States
|
B-20
|
|
Annex
B-4
|
Second
integrated executive summary of the arguments of the United States
|
B-28
|
ANNEX C
Arguments
of the Third Parties
|
Contents
|
Page
|
|
Annex C-1
|
Integrated
executive summary of the arguments of Australia
|
C-2
|
|
Annex C-2
|
Integrated
executive summary of the arguments of Brazil
|
C-4
|
|
Annex C-3
|
Integrated
executive summary of the arguments of Canada
|
C-8
|
|
Annex
C-4
|
Integrated
executive summary of the arguments of China
|
C-11
|
|
Annex
C-5
|
Integrated
executive summary of the arguments of Japan
|
C-13
|
ANNEX D
PROCEDURAL
RULINGS
|
Contents
|
Page
|
|
Annex D-1
|
Letter from the Panel, 15 January 2016
|
D-2
|
|
Annex D-2
|
Letter from the Panel, 4 May 2016
|
D-3
|
ANNEX A
Working
Procedures of the Panel
|
Contents
|
Page
|
|
Annex A-1
|
Working Procedures of the
Panel
|
A-2
|
|
Annex A-2
|
Additional
Working Procedures on BCI and HSBI
|
A-7
|
|
Annex A-3
|
Additional
Working Procedures for the partial opening to the public of the meeting of
the panel
|
A-19
|
|
Annex A-4
|
Additional
Working Procedures for the partial opening to the public of the second
meeting of the panel
|
A-21
|
ANNEX A-1
working
procedures of THE PANEL
Adopted on
7 December 2015
1. In its proceedings, the Panel
shall follow the relevant provisions of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU). In addition, the
following Working Procedures shall apply.
General
2. The deliberations of the Panel
and the documents submitted to it shall be kept confidential. Nothing in the
DSU or in these Working Procedures shall preclude a party to the dispute
(hereafter "party") from disclosing statements of its own positions
to the public. Members shall treat as confidential information submitted to the
Panel by another Member which the submitting Member has designated as
confidential. Where a party submits a confidential version of its written
submissions to the Panel, it shall also, upon request of a Member, provide a
non-confidential summary of the information contained in its submissions that
could be disclosed to the public.
3. Subject to this paragraph, the
Panel shall meet in closed session. The parties, and Members having notified
their interest in the dispute to the Dispute Settlement Body in accordance with
Article 10 of the DSU (hereafter "third parties"), shall be present
at the meetings only when invited by the Panel to appear before it. The Panel may open its substantive meetings with the parties to the
public, subject to appropriate procedures to be adopted by the Panel after
consulting with the parties.
4. Each party and third party has
the right to determine the composition of its own delegation when meeting with
the Panel. Each party and third party shall have the responsibility for all
members of its own delegation and shall ensure that each member of such
delegation acts in accordance with the DSU and these Working Procedures,
particularly with regard to the confidentiality of the proceedings.
Submissions
5. Before the first substantive
meeting of the Panel with the parties, each party shall submit a written
submission in which its presents the facts of the case and its arguments, in
accordance with the timetable adopted by the Panel. Each party shall also
submit to the Panel, prior to the second substantive meeting of the Panel, a
written rebuttal, in accordance with the timetable adopted by the Panel.
6. A party shall submit any
request for a preliminary ruling at the earliest possible opportunity and in
any event no later than in its first written submission to the Panel. If the
European Union requests such a ruling, the United States shall submit its
response to the request in its first written submission. If the United States
requests such a ruling, the European Union shall submit its response to the
request prior to the first substantive meeting of the Panel, at a time to be
determined by the Panel in light of the request. Exceptions to this procedure
shall be granted upon a showing of good cause.
7. Each party shall submit all
factual evidence to the Panel no later than during the first substantive
meeting, except with respect to evidence necessary for purposes of rebuttal,
answers to questions or comments on answers provided by the other party.
Exceptions to this procedure shall be granted upon a showing of good cause.
Where such exception has been granted, the Panel shall accord the other party a
period of time for comment, as appropriate, on any new factual evidence submitted
after the first substantive meeting.
8. Where the original language of
exhibits is not a WTO working language, the submitting party or third party
shall submit a translation into the WTO working language of the submission at
the same time. The Panel may grant reasonable extensions of time for the
translation of such exhibits upon a showing of good cause. Any objection as to
the accuracy of a translation should be raised promptly in writing, no later
than the next filing or meeting (whichever occurs earlier) following the
submission which contains the translation in question. The Panel may grant
exceptions to this procedure upon a showing of good cause. Any objection shall
be accompanied by a detailed explanation of the grounds of objection and an
alternative translation.
9. To facilitate the maintenance
of the record of the dispute and maximize the clarity of submissions, each
party and third party shall sequentially number its exhibits throughout the
course of the dispute. For example, exhibits submitted by the European Union
could be numbered EU‑1, EU‑2, etc. If the last exhibit in connection with the
first submission was numbered EU‑5, the first exhibit of the next submission
thus would be numbered EU-6.
10. Parties and third parties are
invited to make their respective submissions in accordance with the WTO
Editorial Guide for Panel Submissions, attached as Annex 1.
11. Upon indication from any
party, at the latest on the date of the Panel's first substantive meeting with
the parties, that it shall provide information that requires protection
additional to that provided for under these Working Procedures, the Panel
shall, after consultation with the parties, decide whether to adopt appropriate
additional procedures.
Questions
12. The Panel may at any time pose
questions to the parties and third parties, orally or in writing, including
prior to each substantive meeting.
Substantive meetings
13. Each party shall provide to
the Panel the list of members of its delegation in advance of each meeting with
the Panel and no later than 5.00 p.m. the previous working day.
14. The first substantive meeting
of the Panel with the parties shall be conducted as follows:
a. The Panel shall invite the European Union to make an opening
statement to present its case first. Subsequently, the Panel shall invite the
United States to present its point of view. Before each party takes the floor,
it shall provide the Panel and other participants at the meeting with a
provisional written version of its statement. In the event that interpretation
is needed, each party shall provide additional copies for the interpreters,
through the Panel Secretary. Each party shall make available to the Panel and
the other party the final version of its opening statement as well as its
closing statement, if any, preferably at the end of the meeting, and in any
event no later than 5.00 p.m. on the first working day following the
meeting.
b. After the conclusion of the statements, the Panel shall give each
party the opportunity to ask each other questions or make comments, through the
Panel. Each party shall then have an opportunity to answer these questions
orally. Each party shall send in writing, within a timeframe to be determined
by the Panel, any questions to the other party to which it wishes to receive a
response in writing. Each party shall be invited to respond in writing to the
other party's written questions within a deadline to be determined by the
Panel.
c. The Panel may subsequently pose questions to the parties. Each party
shall then have an opportunity to answer these questions orally. The Panel
shall send in writing, within a timeframe to be determined by it, any questions
to the parties to which it wishes to receive a response in writing. Each party
shall be invited to respond in writing to such questions within a deadline to
be determined by the Panel.
d. Once the questioning has concluded, the Panel shall afford each
party an opportunity to present a brief closing statement, with the European
Union presenting its statement first.
15. The second substantive
meeting of the Panel with the parties shall be conducted as follows:
a. The Panel shall ask the United States if it wishes to avail itself
of the right to present its case first. If so, the Panel shall invite the
United States to present its opening statement, followed by the European Union.
If the United States chooses not to avail itself of that right, the Panel shall
invite the European Union to present its opening statement first. Before each
party takes the floor, it shall provide the Panel and other participants at the
meeting with a provisional written version of its statement. In the event that
interpretation is needed, each party shall provide additional copies for the
interpreters, through the Panel Secretary. Each party shall make available to
the Panel and the other party the final version of its opening statement as
well as its closing statement, if any, preferably at the end of the meeting,
and in any event no later than 5.00 p.m. of the first working day following
the meeting.
b. After the conclusion of the statements, the Panel shall give each
party the opportunity to ask each other questions or make comments, through the
Panel. Each party shall then have an opportunity to answer these questions
orally. Each party shall send in writing, within a timeframe to be determined
by the Panel, any questions to the other party to which it wishes to receive a
response in writing. Each party shall be invited to respond in writing to the
other party's written questions within a deadline to be determined by the
Panel.
c. The Panel may subsequently pose questions to the parties. Each party
shall then have an opportunity to answer these questions orally. The Panel
shall send in writing, within a timeframe to be determined by it, any questions
to the parties to which it wishes to receive a response in writing. Each party
shall be invited to respond in writing to such questions within a deadline to
be determined by the Panel.
d. Once the questioning has concluded, the Panel shall afford each party
an opportunity to present a brief closing statement, with the party that
presented its opening statement first, presenting its closing statement first.
Third parties
16. The Panel shall invite each
third party to transmit to the Panel a written submission prior to the first
substantive meeting of the Panel with the parties, in accordance with the
timetable adopted by the Panel.
17. Each third party shall also be
invited to present its views orally during a session of this first substantive
meeting, set aside for that purpose. Each third party shall provide to the
Panel the list of members of its delegation in advance of this session and no
later than 5.00 p.m. the previous working day.
18. The third‑party session shall
be conducted as follows:
a. All third parties may be present during the entirety of this
session.
b. The Panel shall first hear the arguments of the third parties in
alphabetical order. Third parties present at the third-party session and
intending to present their views orally at that session, shall provide the
Panel, the parties and other third-parties with provisional written versions of
their statements before they take the floor. Third parties shall make available
to the Panel, the parties and other third parties the final versions of their
statements, preferably at the end of the session, and in any event no later
than 5.00 p.m. of the first working day following the session.
c. After the third parties have made their statements, the parties may
be given the opportunity, through the Panel, to ask the third parties questions
for clarification on any matter raised in the third parties' submissions or
statements. Each party shall send in writing, within a timeframe to be
determined by the Panel, any questions to a third party to which it wishes to
receive a response in writing.
d. The Panel may subsequently pose questions to the third parties. Each
third party shall then have an opportunity to answer these questions orally.
The Panel shall send in writing, within a timeframe to be determined by it, any
questions to the third parties to which it wishes to receive a response in
writing. Each third party shall be invited to respond in writing to such
questions within a deadline to be determined by the Panel.
Descriptive part
19. The description of the
arguments of the parties and third parties in the descriptive part of the Panel
report shall consist of executive summaries provided by the parties and third
parties, which shall be annexed as addenda to the report. These executive
summaries shall not in any way serve as a substitute for the submissions of the
parties and third parties in the Panel's examination of the case.
20. Each party shall submit an
integrated executive summary of the facts and arguments as presented to the
Panel in its first written submissions, first opening and closing oral
statements and responses to questions following the first substantive meeting,
and a separate integrated executive summary of its written rebuttal, second
opening and closing oral statements and responses to questions following the
second substantive meeting, in accordance with the timetable adopted by the
Panel. Each integrated executive summary shall be limited to no more than 15
pages. The Panel will not summarize in a separate part of its report, or annex
to its report, the parties' responses to questions.
21. Each third party shall submit
an integrated executive summary of its arguments as presented in its written
submission and statement in accordance with the timetable adopted by the Panel.
This integrated executive summary may also include a summary of responses to
questions, if relevant. The executive summary to be provided by each third
party shall not exceed 6 pages.
22. The Panel reserves the right
to request the parties and third parties to provide executive summaries of
facts and arguments presented by a party or a third party in any other
submissions to the Panel for which a deadline may not be specified in the
timetable.
Interim review
23. Following issuance of the
interim report, each party may submit a written request to review precise
aspects of the interim report and request a further meeting with the Panel, in
accordance with the timetable adopted by the Panel. The right to request such a
meeting shall be exercised no later than at the time the written request for
review is submitted.
24. In the event that no further
meeting with the Panel is requested, each party may submit written comments on
the other party's written request for review, in accordance with the timetable
adopted by the Panel. Such comments shall be limited to commenting on the other
party's written request for review.
25. The interim report, as well as
the final report prior to its official circulation, shall be kept strictly
confidential and shall not be disclosed.
Service of documents
26. The following procedures
regarding service of documents shall apply:
a. Each party and third party shall submit all documents to the Panel
by filing them with the DS Registry (office No. 2047).
b. Each party and third party shall file six paper copies of all
documents it submits to the Panel. Exhibits may be filed in two copies on CD‑ROM
or DVD and six paper
copies. The DS Registrar shall stamp the documents with the date and time
of the filing. The paper version shall constitute the official version for the
purposes of the record of the dispute.
c. Each party and third party shall also provide an electronic copy of
all documents it submits to the Panel at the same time as the paper versions,
preferably in Microsoft Word format, either on a CD-ROM, a DVD or as an e-mail
attachment. If the electronic copy is provided by e-mail, it should be
addressed to DSRegistry@wto.org, with a copy to ****@wto.org and to ****@wto.org.
If a CD-ROM or DVD is provided, it shall be filed with the DS Registry.
d. Each party shall serve any document submitted to the Panel directly
on the other party. Each party shall, in addition, serve on all third parties
its written submissions in advance of the first substantive meeting with the
Panel. Each third party shall serve any document submitted to the Panel
directly on the parties and all other third parties. Each party and third party
shall confirm, in writing, that copies have been served as required at the time
it provides each document to the Panel.
e. Each party and third party shall file its documents with the DS
Registry and serve copies on the other party (and third parties where
appropriate) by 5.00 p.m. (Geneva time) on the due dates established by
the Panel. A party or third party may submit its documents to another party or
third party in electronic format only, subject to the recipient party or third
party's prior written approval and provided that the Panel Secretary is
notified.
f. The Panel shall provide the parties with an electronic version of
the descriptive part, the interim report and the final report, as well as of
other documents as appropriate. When the Panel transmits to the parties or
third parties both paper and electronic versions of a document, the paper
version shall constitute the official version for the purposes of the record of
the dispute.
27. The Panel reserves the right
to modify these procedures as necessary, after consultation with the parties.
ANNEX
A-2
additional
working procedures FOR THE PROTECTION OF BUSINESS CONFIDENTIAL INFORMATION AND HIGHLY
SENSITIVE BUSINESS INFORMATION
("bci/hsbi procedures")
Adopted on 13 January 2016
1 GENERAL
1.1. The following Procedures apply to all business confidential
information ("BCI") and highly sensitive business information
("HSBI") on the Panel record. These Procedures do not diminish the
rights and obligations of the parties to request and disclose any information
within the scope of the SCM Agreement and Article 13 of the DSU.
For the purposes of these Procedures,
2.1. "Approved Person" means a
Representative or Outside Advisor of a Party, when designated in accordance
with these procedures.
2.2. "Business Confidential Information"
or "BCI" means any business information
regardless of whether contained in a document provided by a public or private body
that a Party or Third Party has "Designated as BCI" because it is not
otherwise available in the public domain and its disclosure could, in the
Party's or Third Party's view, cause harm to the originators of the
information. Each Party and Third Party shall act in good faith and exercise
restraint in designating information as BCI, and will endeavour to designate
information as BCI only if its disclosure would cause harm to the originators
of the information.
2.3. "Conclusion of the Panel Process"
means the earliest to occur of the following events:
a.
pursuant to
Article 16.4 of the DSU, the Panel report is adopted by the DSB, or the DSB
decides by consensus not to adopt the Panel report;
b.
a Party formally
notifies the DSB of its decision to appeal pursuant to Article 16.4 of the DSU;
c.
pursuant to
Article 12.12 of the DSU, the authority for establishment of the Panel lapses;
or
d.
pursuant to
Article 3.6 of the DSU, a mutually satisfactory solution is notified to
the DSB.
2.4. "Designated as BCI" means:
a.
for printed
information, text that is set off with bold square brackets in a document
clearly marked with the notation "BUSINESS CONFIDENTIAL
INFORMATION" and with the name of the Party or Third Party that
submitted the information;
b. for Electronic Information, characters that are set off with bolded
square brackets (or with a heading with bolded square brackets on each page) in
an electronic file that contains the notation "BUSINESS
CONFIDENTIAL INFORMATION", has a file name that contains the
letters "BCI", and is stored on a
storage medium with a label marked "BUSINESS CONFIDENTIAL
INFORMATION" and indicating the name of the Party or Third
Party that submitted the information; and
c.
for uttered
information, declared by the speaker to be "Business
Confidential Information" prior to utterance.[1]
In case either Party objects to the
designation of information as BCI under paragraphs 2.4(a)–(c), the dispute
shall be resolved by the Panel. If the Panel disagrees with designation of
information as BCI, the submitting Party or Third Party may either designate it
as non-BCI or withdraw the information. In the case of withdrawal, the Panel
shall either destroy such information or return it to the submitting Party or
Third Party. Each Party or Third Party may at any time designate as non-BCI
information previously designated by that Party or Third Party as BCI.
This paragraph 2.4 shall apply to all
submissions, including exhibits, by a Party or Third Party.
2.5. "Designated as HSBI" means:
a. for Electronic Information, characters that are set off with double
bolded square brackets (or with a heading with double bolded square brackets on
each page) in an electronic file that contains the notation "HIGHLY SENSITIVE BUSINESS INFORMATION", has a file name
that contains the letters "HSBI", and
is stored on a storage medium with a label marked "HIGHLY
SENSITIVE BUSINESS INFORMATION" and indicating the name of the
Party or Third Party that submitted the information; and
b. for uttered information, declared by the speaker to be "Highly Sensitive Business Information" prior to
utterance.[2]
This paragraph 2.5 shall apply to all
submissions, including exhibits, by a Party or Third Party.
2.6. "Electronic Information" means
any information stored in an electronic form (including but not limited to
binary-encoded information).
2.7. "Highly Sensitive Business Information"
or "HSBI" means any business information
regardless of whether contained in a document provided by a public or private
body that a Party or Third Party has "Designated as HSBI" because it
is not otherwise available in the public domain and its disclosure could, in
the Party's or Third Party's view, cause exceptional harm to its originators.
Each Party and Third Party shall act in good faith and exercise the utmost
restraint in designating information as HSBI. Each Party and Third Party may at
any time designate as non-BCI/HSBI or as BCI information designated by that
Party or Third Party as HSBI.
a.
The following
categories of information may be Designated as HSBI:
i. information indicating the actual selling or offered price of any
large civil aircraft (LCA) manufacturer's products or services[3], and, except as
provided in subparagraph 2.7 (d)(i) below, any graphs or other use of the
data which reflect the movement of prices, pricing trends or actual prices of
an LCA model or a family of LCA;
ii. information gathered or produced in the context of LCA sales
campaigns;
iii. information concerning market forecasts, analyses, business plans
and share/business valuations generated by LCA producers, consultants, or
investment banks with regard to LCA products; or
iv. information concerning an LCA manufacturer's costs of production,
including but not limited to data regarding pricing by suppliers.
b. Each Party and Third Party may also Designate as HSBI any other
category of business information that is not otherwise available in the public
domain and the disclosure of which could, in the Party's view, cause
exceptional harm to its originators.
c. Each Party and Third Party shall Designate as HSBI any information
described in subparagraph 2.7(a) that pertains to LCA produced by an LCA
manufacturer headquartered within the territorial jurisdiction of either of the
Parties.
d.
Notwithstanding
the foregoing, the following categories of information may not be Designated as
HSBI:
i.
aggregated
pricing data for a particular LCA model or family of LCA within a particular
market that is indexed (i.e., does not reflect actual prices but rather
movements in prices off a base of 100 for a particular year). Such data shall
be treated as BCI;
ii. general legal conclusions based on HSBI (e.g., that HSBI
demonstrates that a producer engaged in price undercutting). Such conclusions
shall be treated as neither BCI nor HSBI;
iii. intergovernmental agreements and government decisions, other than
information described in subparagraph 2.7(a).
e. Information may not be Designated as HSBI simply because it is
subject to bank secrecy or banker-client confidentiality.
f. In case either Party objects to the designation of information as
HSBI under paragraphs 2.7(a) to 2.7(c), the dispute shall be resolved by
the Panel. If the Panel disagrees with designation of information as HSBI, the
submitting Party or Third Party may either designate it as BCI, as non-BCI/HSBI
or withdraw the information. In the case of withdrawal, the Panel shall either
destroy such information or return it to the submitting Party or Third Party.
Each Party or Third Party may at any time designate as non-BCI/HSBI or as BCI
information previously designated by that Party or Third Party as HSBI.
2.8. "HSBI Approved Person" means
Approved Persons specifically designated by the Parties as having the right to
access HSBI (according to the procedures laid down in Section 4).
2.9. "HSBI Location" means a room
to be kept locked when not occupied and the access to which shall be possible
only for HSBI Approved Persons, located:
a.
for HSBI
submitted by the United States, on the premises of (i) the United States
Mission to the European Union in Brussels and (ii) the Office of the United
States Trade Representative in Washington, DC;
b. for HSBI submitted by the European Union, on the premises of (i) the
Delegation of the European Union to the United States in Washington, DC and
(ii) the Legal Service (WTO Team) of the European Commission in Brussels;
c.
for HSBI
submitted by a Third Party, on the premises of its Geneva Mission to the WTO.
2.10. "Locked CD" means a CD-ROM
that is not rewritable.
2.11. "Outside Advisor" means a
legal counsel or other advisor of a Party or Third Party, who:
a. advises a Party or Third Party in the course of the dispute;
b.
is not an
employee, officer or agent of an entity or an affiliate of an entity engaged in
the manufacture of LCA, the provision of supplies to an entity engaged in the
manufacture of LCA, or the supply of air transportation services; and
c. is subject to an enforceable code of professional conduct that
includes an obligation to protect confidential information, or has been
retained by another outside advisor who assumes responsibility for compliance
with these procedures and is subject to such a code of professional conduct.
For purposes of this paragraph, outside legal
counsel representing an LCA producer headquartered in the territory of one of
the Parties or Third Parties in connection with these proceedings or outside
consultants who have been retained by such counsel to provide advice with
regard to these proceedings are not considered agents of an entity listed in
subparagraph 2.11(b).
2.12. "Panel" means the DS487 panel
composed on 22 April 2015.
2.13. "Party" means the European
Union or the United States.
2.14. "Party-BCI" means BCI
originally submitted by a Party.
2.15. "Representative" means an employee of a Party or Third Party.
2.16. "Sealed Laptop Computer" means
a laptop computer having (software and hardware) characteristics considered
necessary by the submitting Party for protection of HSBI, provided that it has
software installed that permits such HSBI to be searched and printed in
accordance with the provisions of Section 6. However, HSBI may not be edited on
the Sealed Laptop Computer.
2.17. "Secure Site" means a facility
to be kept locked when not occupied and the access to which shall be possible
only for Approved Persons, located:
a. in the case of the European Union, at the offices of WTO Team of the
Legal Service of the European Commission (Rue de la Loi 200, Brussels,
Belgium), the offices of Directorate General for Trade of the European
Commission (Rue de la Loi 170, Brussels, Belgium), the offices of the Permanent
Mission of the European Union to the International Organisations in Geneva (Rue
du Grand-Pré 66, 1202 Geneva, Switzerland), and three additional sites
specified in accordance with subparagraph (c);
b. in the case of the United States, at the offices of the General
Counsel of the Office of the United States Trade Representative (600 17th
Street, NW, Washington, DC, USA), the offices of the Import Administration,
United States Department of Commerce (600 17th Street, NW, Washington, DC,
USA), the Mission of the United States to the World Trade Organization
(11, route de Pregny, 1292 Chambésy, Switzerland), and three additional sites
specified in accordance with subparagraph (c); and
c.
at three sites
other than a government office that are designated by each Party for use by its
Outside Advisors; provided that the identity of those sites has been submitted
to the other Party and the Panel, and the other Party has not objected to the
designation of that site within ten days of such submission.
Any objections raised under subparagraph (c) may be resolved by the
Panel.
2.18. "Stand-Alone Computer" means a
computer that is not connected to a network.
2.19. "Stand-Alone Printer" means a
printer that is not connected to a network.
2.20. "Submission" means any
written, electronic, or uttered information transmitted to the Panel, including
but not limited to, correspondence, written submissions, exhibits, oral
statements, and answers to questions.
2.21. "Third Party" means a Member
having notified its interest in the dispute to the DSB pursuant to DSU Article
10.
2.22. "Third Party BCI Approved Person"
means a representative or Outside Advisor of a Third Party granted access
to BCI pursuant to paragraphs 4.2, 5.2, 5.3 and 5.9.
2.23. "WTO Approved Persons" means
the Panel members, PGE members or experts appointed by the Panel who in the
opinion of the Panel require access to BCI, and persons employed or appointed
by the WTO Secretariat who have been authorized by the WTO Secretariat to work
on the dispute (and includes translators and interpreters as well as any
transcribers present at Panel meetings involving BCI and/or HSBI).
2.24. "WTO Reading Room" means a
room, located on the premises of the WTO, which a Third Party BCI Approved
Person may use to access a Party's Submission that contains Party BCI.
2.25. "WTO Rules of Conduct" means
the Rules of Conduct for the Understanding on Rules and Procedures Governing
the Settlement of Disputes, as adopted by the DSB on 3 December 1996
(WT/DSB/RC/1).
3 SCOPE
3.1. These procedures apply to all BCI and HSBI received by an Approved
Person and by WTO Approved Persons as a result of the Panel process, and to all
BCI reviewed, in accordance with these procedures, by a Third Party BCI
Approved Person.
3.2. Unless specifically otherwise provided herein, these procedures do
not apply to a Party's or Third Party's treatment of its own BCI and HSBI.
4.1. At the latest on 18 January 2016, each Party shall submit to the
other Party and Third Parties, and to the Panel, a list of the names and titles
of any Representatives and Outside Advisors who need access to BCI submitted by
the other Party and/or Third Parties and whom it wishes to have designated as
Approved Persons, along with any clerical or support staff that would have
access to the BCI. On that list, each Party shall indicate which Approved
Persons need access to HSBI submitted by the other Party and/or Third Parties
and whom it wishes to have designated as HSBI Approved Persons. Each Party may submit amendments to their list of Approved Persons
by submitting such amendments to the other Party and Third Parties, and to the
Panel.
4.2. There shall be no Third Party HSBI Approved Persons. The designation
of Third Party BCI Approved Persons shall be governed by paragraphs 5.2 and
5.3.
4.3. Each Party shall keep the number of Approved Persons as limited as
possible. Each Party may designate no more than a total of thirty
Representatives and twenty Outside Advisors as "HSBI Approved
Persons".
4.4. WTO Approved Persons shall have access to BCI. The
Director-General of the WTO, or his designee, shall submit to the
Parties and Third Parties, and to the Panel, a list of the WTO Approved Persons
and shall identify which of those WTO Approved Persons shall additionally have
access to HSBI.
4.5. Unless a Party objects to the designation of an Outside Advisor of
the other Party, the Panel shall designate those persons as Approved Persons. A
Party also may object within ten days of becoming aware of information that was
not available to the Party at the time of the filing of a list under paragraph
4.1 that would suggest that designation of an individual is not appropriate. If
a Party objects, the Panel shall decide on the objection within ten working
days.
4.6. An objection may be based on the failure to satisfy the definition
of "Outside Advisor" or on any other compelling basis, including
conflicts of interest.
4.7. The Parties or the Director-General of the WTO, or his designee, may
submit amendments to their lists at any time, subject to the overall limits set
out in paragraph 4.3 and to objections for the addition of new Approved Persons
in accordance with paragraphs 4.5 and 4.6.
5.1. Only Approved Persons, WTO Approved Persons and Third Party BCI
Approved Persons may have access to BCI submitted in this proceeding. Third
Party BCI Approved Persons may not have access to Party-BCI other than that
included in the submissions. Approved Persons, WTO Approved Persons and Third
Party BCI Approved Persons shall use BCI only for the purposes of this dispute.
No Approved Person or WTO Approved Person shall disclose BCI, or allow it to be
disclosed, to any person except another Approved Person, WTO Approved Person or
Third Party BCI Approved Person. No Third Party BCI Approved Person shall
disclose BCI, or allow it to be disclosed, to any person except another
Approved Person, WTO Approved Person or Third Party BCI Approved Person. These
obligations apply indefinitely.
5.2. Each Third Party that wants to access Party-BCI contained in the
first written submission of a Party shall submit to the other Party and Third
Parties, and to the Panel, a list of the names and titles of any
Representatives and Outside Advisors (including clerical or support staff) who
need access to such BCI and whom it wishes to have designated as Third Party
BCI Approved Persons. Each Third Party shall keep the number of Third Party BCI
Approved Persons as limited as possible. Each Third Party may designate no more
than a total of five Representatives and Outside Advisors as Third Party BCI
Approved Persons.
5.3. Unless a Party objects to the designation of an Outside Advisor of a
Third Party, the Panel shall designate those persons as Third Party BCI
Approved Persons, following which the access referred to in paragraph 5.2 may
be given to the Third Party concerned. A Party also may object within ten days
of becoming aware of information that was not available to the Party at the
time of the filing of a list under paragraph 5.2 above that would suggest that
designation of an individual is not appropriate. If a Party objects, the Panel
shall decide on the objection within ten working days. An objection may be
based on the failure to satisfy the definition of "Outside Advisor"
or on any other compelling basis, including conflicts of interest.
5.4. A Party shall make no more than one copy of any BCI submitted by the
other Party or a Third Party for each Secure Site provided for that Party in
paragraph 2.17.
5.5. Parties may incorporate BCI in internal memoranda for the exclusive
use of Approved Persons. Any memorandum and the BCI it contains shall be marked
in accordance with paragraph 2.4.
5.6. BCI submitted by Approved Persons or by Third Party BCI Approved
Persons pursuant to these procedures shall not be copied, distributed, or
removed from the Secure Site, except as necessary for submission to the Panel.
5.7. The treatment in a Party's Submissions to the Panel of any BCI shall
be governed by the provisions of this paragraph, which shall prevail to the
extent of any conflict with the other provisions of the Working Procedures
(including these Procedures) relating to BCI.
a. Parties may incorporate BCI in Submissions to the Panel, marked as
indicated in paragraph 2.4. In exceptional cases, parties may include BCI in an
appendix to a Submission.
b.
A Party
submitting a Submission or appendix containing BCI shall also submit, within a
time period to be set by the Panel, a version redacting any BCI. This shall be
referred to as the "Non-BCI Version". However, a Party is not
required to submit a "Non-BCI Version" of any exhibit containing BCI,
unless specifically directed to do so by the Panel. In the case of Submissions of the Parties prior to the first
meeting of the Panel, each Party shall serve a "Non-BCI Version" of
its Submission on Third Parties by 5.00 p.m. on the working day following
the date of the Submission.
c. A Non-BCI Version shall be sufficient to permit a reasonable
understanding of its substance. In order to prepare such a Non-BCI Version:
i.
A Party may
request the Party that originally submitted the BCI, as soon as possible, to
indicate with precision portions of documents containing BCI that may be
included in the non-BCI Version and, if necessary to permit a reasonable
understanding of the substance of the information, to produce a Non-BCI summary
in sufficient detail to achieve this aim.
ii. Upon receipt of such a request, the Party that originally submitted
the BCI shall, as soon as possible, indicate with precision portions of
documents containing BCI that may be included in the Non-BCI Version and, if
necessary to permit a reasonable understanding of the substance of the
information, produce a Non-BCI summary in sufficient detail to achieve this
aim.
iii. The Panel shall resolve any disagreement as to whether the Party
that originally submitted the BCI failed to indicate with sufficient precision
portions of documents containing BCI that may be included in the Non-BCI
Version and to produce, if necessary, a Non-BCI summary in sufficient detail to
permit a reasonable understanding of the substance of the information, and may
take appropriate action to ensure that the provisions of this paragraph are
satisfied.
d. The responding Party may designate the personal offices of up to
four of its Approved Persons as additional Secure Sites for the sole purpose of
storing and permitting review of the BCI versions of the Parties' Submissions
to the Panel. All of the protections applicable to BCI under these procedures,
including the storage rules in Paragraph 5.11, shall apply to such Submissions.
BCI exhibits to Submissions may not be stored or reviewed at these additional
Secure Sites. The responding Party shall submit the address (including room
number) of each of the additional Secure Sites to the Panel and the complaining
Party.
5.8. Any document containing BCI shall not be copied in excess of the number of copies required by
the Approved Persons. All copies of such documents shall be consecutively
numbered. The making of electronic copies shall be avoided whenever possible.
Such documents may be transmitted electronically only by using secure e-mail.
If a Party or Third Party submits to the Panel an original document that cannot
be transmitted electronically, it shall on the day of submission deliver a copy
of that document to one of the Secure Sites listed in paragraph 2.17. The Parties shall designate one of the Secure Sites listed in
paragraph 2.17 for this purpose.
5.9. Notwithstanding paragraph 20 of the Working Procedures[4], the following procedures
apply to the access by Third Parties to a Party's Submission that contains
Party-BCI.
a. Except as provided in subparagraph 5.7(b), a Party's Submission
containing Party-BCI shall not be served on Third Parties unless both Parties
agree otherwise.
b.
Third Party BCI
Approved Persons may view Party-BCI contained in a Party's first written
submission only in a Secure Site or in the WTO Reading Room. Third Party BCI
Approved Persons may not bring into such room any electronic recording or
transmitting devices. Third Party BCI Approved Persons may not remove a Party's
Submission containing Party-BCI from such room, but may take handwritten notes
of the Party-BCI contained therein. Such notes shall be used exclusively for
this dispute (that is, DS487). Each person viewing a Party's Submission
containing Party-BCI shall complete and sign a log identifying the Submission
the person reviewed. The Party responsible for maintaining the particular
Secure Site, and the WTO Secretariat in the case of the WTO Reading Room, shall
maintain such log until one year after the Conclusion of the Panel Process. Before entering and when leaving the room, Outside
Advisors who are Third Party BCI Approved Persons may be subject to appropriate
controls.
c.
If a Third Party
BCI Approved Person removes from the Secure Site or the WTO Reading Room a handwritten
memo in accordance with subparagraph 5.9(b) above, that Third Party BCI
Approved Person shall store the memo only in a locked security container. Such
memo shall be appropriately protected against improper inspection and
eavesdropping when being consulted and will be transmitted in sealed heavy duty
double envelopes only. The content of such memo shall not be incorporated,
electronically or in handwritten form, into the Non-BCI Version, as defined in
paragraph 5.7(b).
d. All Third Parties that have designated Third Party BCI Approved
Persons must inform the Parties of the identity of the specific room (including
the address and the room number) in which the locked security container, as
referred to in subparagraph 5.9(c) above, is located.
e. If a Third Party BCI Approved Person removes from the Secure Site or
the WTO Reading Room a handwritten memo in accordance with subparagraph 5.9(b)
above, such memo shall not be copied in excess of the number of copies required
by the Third Party BCI Approved Persons. All copies of such documents shall be
consecutively numbered. The making of electronic copies of such memo shall be
prohibited.
f. A Third Party may not incorporate into the body of its Submission
any Party-BCI. If a Third Party wishes to refer to any Party-BCI, the relevant
arguments including such BCI should be incorporated into a separate Appendix.
Such Appendix shall not be served on other Third Parties.
g. On the date determined by the Panel as the deadline to make the
Third Party written submission, a Third Party shall serve its submission only
on the Parties and on the Panel. The submission shall be served on the other
Third Parties only after the Parties have confirmed that the submission does
not contain or disclose Party-BCI. A Party shall make this confirmation or
otherwise advise of any necessary change to the relevant Third Party within two
working days of receiving the submissions of Third Parties.
5.10. A Party or Third Party that wishes to submit or refer to BCI at a
Panel meeting shall so inform the Panel and the other Party, and Third Parties
as appropriate. The Panel shall exclude persons who are not Approved Persons,
WTO Approved Persons or, as appropriate, Third Party BCI Approved Persons from
the meeting for the duration of the submission and discussion of BCI.
5.11. Approved Persons and WTO Approved Persons shall store BCI only in
locked security containers. In the case of BCI submitted to the Panel, such
locked security containers shall be kept on the WTO Secretariat's premises,
except that Panel members may maintain a copy of all relevant documents and
materials containing BCI at their places of residence. Such documents and
materials shall be stored in locked security containers when not in use. BCI
shall be appropriately protected against improper inspection and eavesdropping
when being consulted and will be transmitted in sealed heavy duty double
envelopes only. All work papers (e.g., draft
submissions, worksheets, etc.) containing BCI shall, when no longer needed, be
shredded or burned consistent with normal government practice for destroying
sensitive documents.
5.12. The Panel shall not disclose BCI in its final report to be
circulated to the Members, but may make statements or draw conclusions that are
based on the information drawn from the BCI.
6.1. Unless otherwise provided below, HSBI shall be subject to all the
restrictions in Section 5 applicable to BCI.
6.2. HSBI shall be submitted to the Panel in electronic form, using
locked CDs or two Sealed Laptop Computers connectable to 19" - 21"
monitors, or in hard copy form, for access by WTO Approved Persons designated
pursuant to paragraph 4.4 as being additionally authorized to access HSBI. All
such HSBI shall be stored in a locked security container in a designated secure
location on the premises of the WTO Secretariat.[5] Any computer in that room
shall be a Stand-Alone Computer. WTO Approved Persons designated pursuant to
paragraph 4.4 as being additionally authorized to access HSBI may view HSBI
only in the designated secure location referred to above. A Stand-Alone Printer
may be used to make hard copies of any HSBI. Such hard copies shall be made on
distinctively colored paper. Such hard copies shall either be stored in a
locked security container at the designated secure location referred to above,
or destroyed at the end of the relevant working session. HSBI shall not be
removed from this designated secure location, except (i) in the form of
handwritten notes that may be used only on the WTO Secretariat's premises and
which shall be destroyed once no longer in use; and (ii) subject to appropriate
precautions, for purposes of meetings of the Panel with the Parties and any
internal deliberations of the Panel, as provided for in paragraph 6.11(j).
6.3. Each Party shall maintain an additional copy (electronic or hard) of
the HSBI it submits to the WTO, for access by HSBI Approved Persons acting on
behalf of the other Party, in the HSBI Locations listed in paragraph 2.9. A
Stand-Alone Printer may be used to make hard copies of any HSBI. Such hard
copies shall be made on distinctively colored paper. Such hard copies shall
either be stored in a safe at the relevant HSBI Location, or destroyed at the
end of the relevant working session.
6.4. If a Third Party submits HSBI, it shall notify the Parties of the
fact that such submission has been made. Each Third Party submitting HSBI shall
maintain an additional copy (electronic or hard) of the HSBI it submits to the
WTO, for access by HSBI Approved Persons acting on behalf of the Parties, in
the HSBI Location listed in paragraph 2.9. A Stand-Alone Printer may be used to
make hard copies of any HSBI. Such hard copies shall be made on distinctively
colored paper. Such hard copies shall either be stored in a safe at the
relevant HSBI Location, or destroyed at the end of the relevant working
session.
6.5. Except as otherwise provided in these procedures, HSBI shall not be
stored, transmitted or copied either in written or electronic form.
6.6. HSBI Approved Persons may view HSBI on the Sealed Laptop Computer
maintained by the other Party or a Third Party or, in the case of HSBI
submitted on Locked CDs on a Stand-Alone Computer, only in a designated room at
one of the HSBI Locations indicated in paragraph 2.9, or at the designated
secure location on the premises of the WTO Secretariat referred to in
paragraph 6.2, unless otherwise mutually agreed by the Parties. The
designated room shall be available to HSBI Approved Persons from 9:00 a.m. to
5:00 p.m. during official working days at the respective HSBI Location.
The designated secure location referred to in paragraph 6.2 shall be available
to HSBI Approved Persons by prior arrangement with the WTO Secretariat. HSBI
Approved Persons may not bring into such room any electronic recording or
transmitting devices. HSBI Approved Persons may not remove HSBI from such room,
except in the form of handwritten notes or aggregated information generated on
a Stand-Alone Computer. In either case, such notes or information shall be used
exclusively for this dispute in connection with which the HSBI has been submitted.
Each person viewing the HSBI in the HSBI Location or designated secure location
referred to in paragraph 6.2 shall complete and sign a log identifying the HSBI
that the person reviewed or, alternatively, such a log can be generated
automatically. Each Party shall, for the HSBI Location within its territory
referenced in paragraph 2.9, maintain such log until one year after the
Conclusion of the Panel Process. The WTO
Secretariat shall, for the designated secure location referred to in paragraph
6.2, maintain such log until one year after the Conclusion of the Panel
Process. Before entering and when leaving such room, Outside Advisors who are
HSBI Approved Persons may be subject to appropriate controls.
6.7. No HSBI Approved Person or WTO Approved Person designated pursuant
to paragraph 4.4 as being additionally authorized to access HSBI shall disclose
HSBI to any person except another HSBI Approved Person or WTO Approved Person
designated pursuant to paragraph 4.4 as being additionally authorized to access
HSBI, and then only for the purpose of this dispute. This obligation applies
indefinitely.
6.8. HSBI may be processed only on
Stand-Alone Computers. Any memorandum containing HSBI
shall not be transmitted electronically, whether by e-mail, facsimile, or
otherwise.
6.9. A Party or Third Party that wishes to submit or refer to HSBI at a
Panel meeting shall so inform the Panel and the other Party, and Third Parties
as appropriate. The Panel shall exclude persons who are not HSBI Approved
Persons or WTO Approved Persons designated pursuant to paragraph 4.4 as being
additionally authorized to access HSBI from the meeting for the duration of the
submission and discussion of HSBI.
6.10. All HSBI shall be stored in a safe at the relevant HSBI Location or
in accordance with paragraph 6.2.
6.11. The treatment in a Party's Submissions to the Panel of any HSBI
shall be governed by the provisions of this paragraph, which shall prevail to
the extent of any conflict with the other provisions of the Working Procedures
(including these Procedures) relating to HSBI.
a. HSBI may be incorporated into a separate appendix to, but not the
body of, a Party's Submission, which appendix shall be comprehensible in
itself. The document containing the HSBI shall be referred to as the "Full
HSBI Version Appendix";
b. A Party submitting an appendix containing HSBI shall also submit,
within a time period to be set by the Panel, a version redacting any HSBI. This
shall be referred to as the "Redacted Version Appendix";
c. At the request of a Party, information contained in the Redacted
Version Appendix may be treated as BCI, in accordance with the provisions of
Section 5;
d. A Redacted Version Appendix shall be sufficient to permit a
reasonable understanding of its substance. In order to prepare such a Redacted
Version Appendix:
i. A Party may request that the Party that originally submitted the
HSBI, as soon as possible, indicate with precision portions of documents
containing HSBI that may be included in the Redacted Version Appendix and, if
necessary to permit a reasonable understanding of the substance of the
information, produce a non-HSBI summary in sufficient detail to achieve
this aim.
ii. Upon receipt of such a request, the Party that originally submitted
the HSBI shall, as soon as possible, indicate with precision portions of documents
containing HSBI that may be included in the Redacted Version Appendix and, if
necessary to permit a reasonable understanding of the substance of the
information, produce a non-HSBI summary in sufficient detail to achieve
this aim.
iii. The Panel shall resolve any disagreement as to whether the Party
that originally submitted the HSBI failed to indicate with sufficient precision
portions of documents containing HSBI that may be included in the Redacted
Version Appendix and to produce, if necessary, a non-HSBI summary in sufficient
detail to permit a reasonable understanding of the substance of the
information, and may take appropriate action to ensure that the provisions of
this paragraph are satisfied.
e. The Full HSBI Version Appendix shall be kept in an HSBI Location and
in the designated secure location referred to in paragraph 6.2, as appropriate,
in the form of a locked CD. If it is not practical to keep the Full HSBI
Version Appendix in an HSBI Location, the Party may keep it in a locked
security container in a Secure Site in the form of a locked CD.
f. The locked CD containing the Full HSBI Version Appendix shall bear
the label marked "FULL VERSION OF HSBI APPENDIX TO SUBMISSION" and
indicate the name of the Party that submitted the HSBI. In addition, the HSBI
Appendix itself shall be marked with heading with double bolded square brackets
on each page in an electronic file that contains the notation "FULL
VERSION OF HSBI APPENDIX TO SUBMISSION". The electronic file containing
the HSBI Appendix shall have a file name that contains the letters "HSBI
VERSION".
g. The Party shall submit one copy of the Full HSBI Version Appendix to
the Panel (through Mr Rodd Izadnia, Secretary to the
Panel) and two copies to the other Party in the form of
two locked CDs. The Full HSBI Version Appendix shall not be transmitted via
e-mail. Parties shall agree between themselves beforehand on the name of the
Approved Person that is to receive the locked CD.
h. The Party shall commence transfer of the locked CDs containing the
Full HSBI Version Appendix no later than the deadline for the submission
concerned, and, at the same time, provide the Panel and the other Party with proof that this has been done.
i.
No more than one
working day in advance of a Panel meeting with the parties, a Party may,
exclusively at that Party's Permanent Mission in Geneva, use the locked CD to
produce no more than one hard copy of the Full HSBI Version Appendix for each
HSBI Approved Person planning to attend that Panel meeting. All paper versions
produced pursuant to this subparagraph shall be collected by the Party
concerned and destroyed immediately after the conclusion of the meeting.
j. WTO Approved Persons designated pursuant to paragraph 4.4 as being
additionally authorized to access HSBI may, exclusively on the WTO premises,
produce paper versions of the Full HSBI Version Appendix for the purpose of,
and immediately prior to, a Panel meeting with the parties and/or an internal
meeting. When not in use, these paper versions shall be stored in a locked
security container in the designated secure location referred to in paragraph
6.2. All paper versions produced pursuant to this subparagraph shall be
destroyed after the Conclusion of the Panel Process as defined in paragraph
2.3.
k. Parties are encouraged to submit versions of exhibits containing
HSBI from which all HSBI has been deleted. Such exhibits shall be referred to
as "HSBI-Redacted Version Exhibits". HSBI-Redacted Version Exhibits
may contain BCI.
i. A Party may submit HSBI-Redacted Version Exhibits prepared by that Party
to the Panel, and serve them on the other Party in accordance with the
applicable procedures, at the time it serves the submission to which the
exhibit relates.
ii. If a HSBI-Redacted Version Exhibit is not submitted by the Party
submitting the exhibit, an HSBI Approved Person representing the other Party
may prepare an HSBI-Redacted Version Exhibit of any such exhibit.
iii. HSBI-Redacted Version Exhibits may be prepared by an HSBI Approved
Person, at an HSBI Location, by deleting the HSBI in the exhibit (identified by
double brackets) from such exhibit and either printing or photo-copying the
resulting document containing no HSBI. The deletion of HSBI from the resulting
document shall be verified by a person authorized for this purpose by the Party
that submitted the exhibit(s) in question. The resulting document containing no
HSBI (but which may contain BCI) will constitute the HSBI-Redacted Version
Exhibit of such exhibit, and may be removed from the HSBI Location.
iv. The Parties shall cooperate to the maximum extent possible to make
available necessary facilities, including printers, photo-copiers, and physical
means for the deletion of text from a document, to enable the preparation of
HSBI‑Redacted Version Exhibits, including making available an HSBI Approved Person
for purposes of the verification provided for in paragraph (iii) above.
HSBI-Redacted Version Exhibits may be prepared by HSBI Approved Persons upon
request during the times the designated room at the relevant HSBI Location is
available, as provided for in paragraph 6.6 of these Procedures.
v. The Panel shall resolve any disagreement arising from the operation
of sub-paragraph 6.11(k), and may take appropriate action to ensure that the
provisions of paragraph 6.11 are satisfied.
l. The Panel reserves the right, after consulting the parties, to amend
the provisions of paragraph 6.11 at any time in order to accommodate situations
arising during Panel meetings, and the preparation of the interim report and
the final report.
6.12. The Panel shall not disclose HSBI in its report, but may make
statements or draw conclusions that are based on the information drawn from the
HSBI.
7.1. Each Party and Third Party is responsible for ensuring that its
Approved Persons and Third Party BCI Approved Persons comply with these
procedures to protect BCI and HSBI submitted by each Party and Third Party, as
well as with enforceable codes of professional conduct to which its Approved
Persons or other Outside Advisors are subject. WTO Approved Persons shall comply
with these procedures to protect BCI and HSBI submitted by a Party or
Third Party. WTO Approved Persons are covered by the WTO Rules of Conduct.
As provided for in the WTO Rules of Conduct, evidence of breach of these Rules
may be submitted to the Chair of the DSB or to the Director-General of the WTO,
or his designee, as appropriate, for appropriate action pursuant to Section
VIII of the WTO Rules of Conduct.
8.1. After consulting with the Parties, the Panel may apply any other
additional procedures that it considers necessary to provide additional
protections to the confidentiality of BCI or HSBI or other types of information
not explicitly covered by these Procedures but which the Panel considers may be
of assistance in adjudicating the claims before it, including, if necessary,
information that the United States internally classifies as "Top
Secret", "Secret", "Confidential", or controlled
pursuant to the United States' International Traffic in Arms Regulation
("ITAR").
8.2. The Panel may, with the consent of both Parties, waive any part of
these procedures. Such "waiver" shall be specifically set forth in
writing and signed by a representative of both Parties.
9.1. Except as provided for in paragraph 9.2, after the Conclusion of the
Panel Process as defined in paragraphs 2.3(a), 2.3(c) or 2.3(d), or as
contemplated in paragraph 9.3, within a period to be fixed by the Panel, WTO
Approved Persons, the Parties and Third Parties (along with all Approved
Persons) shall destroy or return all documents (including electronic material)
or other recordings containing BCI to the Party or Third Party that submitted
such documents or other recordings. At the same time, WTO Approved Persons and
the Parties shall destroy and/or return any electronic material submitted by a
Party or Third Party that contains HSBI.
9.2. The WTO Secretariat shall retain one hard copy and one electronic
version of any final report of the Panel containing BCI, and one electronic
version of all documents containing BCI submitted to the Panel, recorded on
locked CD(s), to be kept in sealed containers in a locked cabinet on the
premises of the WTO Secretariat.
9.3. After the Conclusion of the Panel Process as defined in paragraph
2.3(b), the Secretariat will inform the Appellate Body of these procedures and
will transmit to the Appellate Body any BCI/HSBI governed by these Procedures.
Such transmission shall occur separately from the rest of the Panel record, to
the extent possible. Following the adoption by the DSB of the Appellate Body
report pursuant to Article 17.14 of the DSU, or a decision by the DSB by
consensus not to adopt the Appellate Body Report pursuant to Article 17.14 of
the DSU, the provisions of paragraphs 9.1 and 9.2 shall apply mutatis mutandis.
9.4. The hard drive of each Stand-Alone Computer and all media used to
back up such computers shall be destroyed at the Conclusion of the Panel
Process.
ANNEX A-3
Additional
working Procedures for the Partial Opening to the Public of the Meeting of the
Panel
Adopted on 22 February 2016
1.1. The Panel's meeting with the parties will start at 10h00 on 24
February 2016. The Panel shall invite the European
Union to make an opening statement to present its case first. Subsequently, the
Panel shall invite the United States to present its point of view.
1.2. The oral statements of the parties will be video recorded for later
viewing, as set out in paragraph 1.8. below.
1.3. If at any point during its oral statement a party intends to address
BCI or HSBI, it shall request that the video recording be discontinued for the
relevant portion of the oral statement, after which video recording will be
resumed. A party shall first deliver the part of its oral statement that
contains no BCI or HSBI, and then ask for the video recording to be
discontinued, before delivering a second part of its oral statement containing
BCI or HSBI. Either party shall inform the Panel if the other party or the
Panel is referring to BCI or HSBI, whereupon the Panel shall instruct that
video recording be discontinued and instruct any individuals not having
BCI/HSBI approval to exit the room.
1.4. Before each party takes the floor, it shall provide the Panel and
other participants at the meeting with a provisional written version of its
statement. BCI or HSBI in the texts of the oral statements provided to the
panel and the other party during the meeting and prior to the delivery of the
oral statements shall be bracketed in accordance with the BCI/HSBI Procedures.
BCI should be contained within single brackets. HSBI should be contained within
double brackets and deleted. In addition, a party including HSBI in its oral
statement shall provide, prior to delivery of the oral statement, one paper
copy to the panel and one paper copy to the other party, on coloured paper,
with the HSBI included in double brackets. This document shall be subject to
the same confidentiality rules as an HSBI Appendix to a written submission.
1.5. During the meeting with the parties, the following persons will be
admitted into the meeting room: (1) the Panel; (2) all BCI/HSBI-approved
members of the delegations of the parties; (3) BCI/HSBI-approved WTO
Secretariat staff assisting the Panel; and (4) the team hired by the WTO
Secretariat to video record the proceedings. If at any point during the meeting
a party intends to refer to BCI or HSBI, those individuals not having BCI/HSBI
approval shall be asked to exit the room. If at any point during the meeting a
party intends to refer to either BCI or HSBI, the team hired by the WTO
Secretariat to video record the proceedings shall be asked to exit the room.
1.6. After each oral statement has been delivered, the Panel will ask the
respective party whether it can confirm that no BCI or HSBI was pronounced
during the video recorded portion of the oral statement. The Panel will also
ask the parties for confirmation, at the end of the meeting, that no BCI or
HSBI was pronounced during the video recorded portion of the meeting. If both
parties so confirm, the showing of the video recording will proceed according
to the schedule to be determined by the Panel, as provided in paragraph 1.8. If
either party requests to review the video recording, the Panel will invite both
parties to attend a review session, accompanied by a representative of the
Secretariat and the technician responsible for editing, on the premises of the
WTO at an appropriate time after the meeting. In
the event, each party shall designate a maximum of two persons, who shall be
BCI/HSBI-approved persons, to participate in the review session. Parties should
be prepared to advise the technician which portion of the oral presentation
presents a concern, and limit review to those portions of the video recording
to the maximum extent possible. If either party considers that a specific
portion of the video recording must be deleted – because it is BCI or HSBI –
the specific portion of the video recording will be deleted.
1.7. The third party session
will start at 10h00 on 25 February 2016. Third parties shall indicate to the Panel, not later than by
13h00 on 24 February 2016, whether they consent to the video
recording of their oral
statements for later viewing. The Panel will start the third party session with
the statements of those third parties so consenting. After such third parties
have made their statements, any questions or comments from the parties, other
third parties or the Panel concerning these statements shall be made. The Panel
shall then proceed to a third party closed session during which the rest of the
third parties shall make their statements. The Panel or any party or third
party may pose questions to any third party or make comments concerning these
statements. Should any third party intend to include BCI in its oral statement
or otherwise to refer to BCI during the third party session, it is requested to
inform the Panel by 13h00 on 24 February 2016 so that appropriate arrangements can be made to protect the
confidentiality of that information.
1.8. The showing of the video recording of the oral statements of the
parties and third parties shall take place at a date to be determined by the
Panel. The showing will be open to officials of WTO Members and Observers, to
accredited journalists, and to accredited representatives of non-governmental
organizations, upon presentation of their official badges. Other interested
persons will be able to attend by registering directly with the WTO. To this
effect, the Secretariat will place a notice by on the WTO website informing the
public of the showing and including a link through which members of the public
can register.
ANNEX
A-4
Additional
working Procedures for the Partial Opening to the Public
of the Second Meeting of the Panel
Adopted on 23 March 2016
1.1. The Panel's meeting with the parties will start at 10h00 on 5 April
2016.
1.2. In accordance with the Working Procedures adopted for the dispute,
the Panel shall ask the United States whether it wishes to avail itself of the
right to present its case first at the meeting. If the United States wishes to
do so, it will be invited by the Panel to deliver its opening statement first.
Subsequently, the Panel shall invite the European Union to present its point of
view. If the United States chooses not to avail itself of that right, the Panel
shall invite the European Union to present its opening statement first.
1.3. The oral statements of the parties will be video recorded for later
viewing, as set out in paragraph 1.9. below.
1.4. If at any point during its oral statement a party intends to address
BCI or HSBI, it shall request that the video recording be discontinued for the
relevant portion of the oral statement, after which video recording will be
resumed. A party shall first deliver the part of its oral statement that
contains no BCI or HSBI, and then ask for the video recording to be discontinued,
before delivering a second part of its oral statement containing BCI or HSBI.
Either party shall inform the Panel if the other party or the Panel is
referring to BCI or HSBI, whereupon the Panel shall instruct that video
recording be discontinued and instruct any individuals not having BCI/HSBI
approval to exit the room.
1.5. Before each party takes the floor, it shall provide the Panel and
other participants at the meeting with a provisional written version of its
statement. BCI or HSBI in the texts of the oral statements provided to the
panel and the other party during the meeting and prior to the delivery of the
oral statements shall be bracketed in accordance with the BCI/HSBI Procedures.
BCI should be contained within single brackets. HSBI should be contained within
double brackets and deleted. In addition, a party including HSBI in its oral
statement shall provide, prior to delivery of the oral statement, one paper
copy to the panel and one paper copy to the other party, on coloured paper,
with the HSBI included in double brackets. This document shall be subject to
the same confidentiality rules as an HSBI Appendix to a written submission.
1.6. During the meeting with the parties, the following persons will be
admitted into the meeting room: (1) the Panel; (2) all BCI/HSBI-approved
members of the delegations of the parties; (3) BCI/HSBI-approved WTO
Secretariat staff assisting the Panel; and (4) the team hired by the WTO
Secretariat to video record the proceedings. If at any point during the meeting
a party intends to refer to BCI or HSBI, those individuals not having BCI/HSBI
approval shall be asked to exit the room. If at any point during the meeting a
party intends to refer to either BCI or HSBI, the team hired by the WTO
Secretariat to video record the proceedings shall be asked to exit the room.
1.7. After each oral statement has been delivered, the Panel will ask the
respective party whether it can confirm that no BCI or HSBI was pronounced
during the video recorded portion of the oral statement. The Panel will also
ask the parties for confirmation, at the end of the meeting, that no BCI or
HSBI was pronounced during the video recorded portion of the meeting. If both
parties so confirm, the showing of the video recording will proceed according
to the schedule to be determined by the Panel, as provided in paragraph
1.9.
1.8. If either party requests to review the video recording, the Panel
will invite both parties to attend a review session, accompanied by a
representative of the Secretariat and the technician responsible for editing,
on the premises of the WTO at an appropriate time after the meeting. In the
event, each party shall designate a maximum of two persons, who shall be
BCI/HSBI-approved persons, to participate in the review session. Parties should
be prepared to advise the technician which portion of the oral presentation
presents a concern, and limit review to those portions of the video recording
to the maximum extent possible. If either party considers that a specific
portion of the video recording must be deleted – because it is BCI or HSBI –
the specific portion of the video recording will be deleted.
1.9. The showing of the video recording of the oral statements of the
parties and non-confidential portions of the meeting shall take place at a date
to be determined by the Panel. The showing will be open to officials of WTO
Members and Observers, to accredited journalists, and to accredited
representatives of non-governmental organizations, upon presentation of their
official badges. Other interested persons will be able to attend by registering
directly with the WTO. To this effect, the Secretariat will place a notice by
on the WTO website informing the public of the showing and including a link
through which members of the public can register.
_______________
ANNEX B
Arguments
of the Parties
|
Contents
|
Page
|
|
Annex B-1
|
First
integrated executive summary of the arguments of the European Union
|
B-2
|
|
Annex B-2
|
Second
integrated executive summary of the arguments of the European Union
|
B-10
|
|
Annex
B-3
|
First
integrated executive summary of the arguments of the United States
|
B-20
|
|
Annex
B-4
|
Second
integrated executive summary of the arguments of the United States
|
B-28
|
ANNEX B-1
First integrated
executive summary of the arguments of the European Union
I. INTRODUCTION
1. Pursuant
to paragraph 20 of the Panel's Working Procedures (adopted 7 December 2015),
the European Union now provides an integrated executive summary of the facts
and arguments presented in the European Union's (i) first written submission,
(ii) first opening oral statement, (iii) first closing oral statement, and
(iv) responses to questions following the first substantive meeting.
2. In
the present dispute, the European Union challenges several subsidies, in the
form of tax incentives awarded by Washington State to aerospace companies,
which are contingent on the use of domestic over imported goods, and hence
prohibited under Article 3.1(b) of the SCM Agreement. These tax incentives, originally established
by House Bill 2294 ("HB 2294"), have been amended, and extended
through 2040, by Substitute Senate Bill 5952 ("SSB 5952").
3. With
its first written submission, the European Union established a prima facie case that (i) the measures at issue are
subsidies within the meaning of Article 1.1 of the SCM Agreement, and that (ii)
these subsidies are contingent on the use of domestic over imported goods
within the meaning of Article 3.1(b).
4. As
for "subsidy", the European Union has demonstrated the existence of a
financial contribution in the form of foregoing of government revenue otherwise
due, within the meaning of Article 1.1(a)(1)(ii). Further, the European Union has demonstrated
that the measures confer a "gift" on the recipients that would not
have been available in the market, thereby conferring a “benefit” within the
meaning of Article 1.1(b).
5. As
for the prohibited contingency, the European Union refers to both the text of
SSB 5952 (de jure contingency), and certain
additional facts (de facto contingency). While the European Union advances both de jure and a de facto claims
of contingency, its first and principal claim is the de jure
claim.
6. By
way of background, the European Union notes that Washington State, itself, has
quantified the total value of the revenue foregone pursuant to the conditional
amendments and extensions established by SSB 5952 - nearly USD 9 billion. While the quantum of subsidization is
irrelevant to a prohibited subsidy dispute as a legal matter, it is pertinent
to note that the measures at issue confer on their beneficiaries – with Boeing
being the principal beneficiary – the single largest targeted state tax break
in United States history.
II. FACTUAL ASPECTS
A. The Washington State Aerospace Tax
Incentives
7. At issue in this dispute
are tax incentives for civil aircraft provided by the State of Washington (the
"aerospace tax incentives"), as amended and extended by SSB 5952, and
as subject to the conditions in Sections 2, 5, and 6 thereof.
8. In 2003, the State of Washington enacted HB
2294 for the purpose of "retaining and attracting the aerospace industry
to Washington State" and included a set of "comprehensive tax
incentives" directed at achieving this aim. This legislation was part of a package of
incentives for Boeing to locate the 787 final assembly facility in
Washington. HB 2294 took effect upon a
final decision to site a facility in Washington State "with the capacity
to produce at least thirty-six super-efficient airplanes a year," defined
by the precise specifications for the 787.
9. HB
2294 established seven tax incentives for producers of civil aircraft
(including certain suppliers):
Ø A reduction in the rate of Business and Occupation
("B&O") tax, i.e., the State of Washington's principal business
tax, to 0.2904%, compared to the generally applicable rates of 0.484% for
manufacturing, and 0.471% for retailing activities.
Ø A B&O tax credit for pre-production development for commercial
airplanes and components;
Ø A B&O tax credit for property taxes on commercial airplane
manufacturing facilities;
Ø An exemption from sales and use taxes for certain computer hardware,
software, and peripherals;
Ø An exemption from sales and use taxes for certain construction
services and materials;
Ø An exemption from leasehold excise taxes on port district facilities
used to manufacture superefficient airplanes; and
Ø An exemption from property taxes for the personal property of port
district lessees used to manufacture superefficient airplanes.
10. While the tax incentives that originated
in HB 2294 were originally enacted in connection with Boeing's decision to
locate the first 787 final assembly line in Washington State, HB 2294 provided
that those benefits were to apply to all Boeing LCA developed and produced in
Washington State, through the original expiration date of 1 July 2024.
B. The Conditional Extension
and Amendment of the Washington State Aerospace Tax Incentives: Substitute
Senate Bill 5952
1. The
777X incentive legislation
11. Over the course of 2013, Boeing publicly
considered developing a new, advanced variant of its 777 family of long-range,
twin-aisle LCA, known as the 777X. On 5
November 2013, Washington State, Boeing, and the trade union representing
Boeing machinists reached a tentative agreement to locate production of the
777X in Washington, whereby the union would agree to a new long-term contract,
and the State would provide Boeing with billions of dollars in additional
subsidies.
12. On 9 November 2013, the Washington State
legislature passed SSB 5952, which, subject to certain conditions discussed
below, amends and extends each of the existing aerospace tax incentives –
originally due to expire in 2024 – through 2040, at a value estimated at more
than USD 8.7 billion for Boeing, its suppliers, and other local aerospace
firms. Governor Jay Inslee signed SSB
5952 into law on 11 November 2013.
2. The
Programme-Siting condition
13. Section 2 of SSB 5952 provides that the
entire act would take effect only upon the decision to locate a new commercial
aircraft programme – expressly defined to include wing and
fuselage production of an aircraft, in addition to final assembly of that same aircraft – in Washington
State. Specifically, Section 2 provides
that:
{this act} takes effect contingent upon the siting of a
significant commercial airplane manufacturing program in the state of
Washington. If a significant commercial airplane manufacturing program is not
sited in the state of Washington by June 30, 2017, {this act} does not take
effect.
The European
Union refers to this provision as the "Programme-Siting
condition".
14. Section 2 defines "siting" to mean
"a final decision, made on or after November 1, 2013, by a manufacturer to
locate a significant commercial airplane manufacturing program in Washington
state". It further defines
"significant commercial airplane manufacturing program" as:
an airplane program in which the following products,
including final assembly, will commence manufacture at a new or existing
location within Washington state on or after the effective date of this
section:
(i) The new model, or any version or variant of an
existing model, of a commercial airplane; and
(ii) Fuselages and wings of a new model, or any
version or variant of an existing model, of a commercial airplane.[6]
15. Accordingly, under the Programme-Siting
condition established in Section 2, the aerospace tax incentive extensions and
expansion provided for in SSB 5952 were made contingent upon Boeing's decision
to locate in Washington State both (i) production of the wings and fuselage for
a new aircraft model, version, or variant, and (ii) final assembly of that same
aircraft model, version, or variant. In
fact, the relevant aircraft turned out to be the 777X.
3. The
Exclusive-Production condition
16. In addition to the Programme-Siting
condition, SSB 5952 establishes a second condition related to the availability
of the B&O tax rate reduction for the 777X, hereinafter referred to as the
"Exclusive-Production condition".
17. Pursuant to the Exclusive-Production
condition, the reduced B&O tax rate would not apply to revenue from the
777X in the event Boeing were to perform any
final assembly, or any wing assembly, for the
777X outside of Washington State.
III. Prohibited Subsidies Under Article 3.1(b) of
the SCM Agreement
A. The
Aerospace Tax Incentives, as Amended by SSB 5952, Constitute Specific Subsidies
1. Financial
contribution
18. Each of the aerospace tax incentives, as
amended and extended by SSB 5952, constitutes a financial contribution by a
government involving the "forego{ing}" of "government revenue
that is otherwise due" within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement.
19. The identification of
revenue "otherwise due" involves a comparison between the challenged
measure and a "defined, normative benchmark". According to the Appellate Body Report in US – FSC (Article 21.5 – EC), the proper comparison must be
"between the rules of taxation contained in the challenged measure and
other rules of taxation of the Member concerned", and "{i}n
identifying the appropriate benchmark for comparison, panels must obviously
ensure that they identify and examine fiscal situations which it is legitimate
to compare".
20. In
response to Panel Question 24, and expanding on the European Union's prima facie showing in its First Written Submission, the
European Union has further specified the relevant normative benchmark for each
of the measures at issue, demonstrating that the tax treatment enjoyed by the
beneficiaries involves foregoing of revenue that would be due under the
relevant benchmark. Additionally, the
European Union has explained that Washington State, itself, has publicly
acknowledged this foregoing of revenue, and has even quantified the revenue
that is foregone under each of the measures at issue, making the Panel's task a
simple one.
21. In
analyzing Article 1.1(a)(1)(ii), the Appellate Body in US – FSC
has explained that the word "foregone" "suggests that the
government has given up an entitlement to raise revenue
that it could 'otherwise' have raised".[7] When a government confers upon a taxpayer an entitlement to a tax reduction, it foregoes its own entitlement to raise a part of the revenue that would
otherwise be due from the taxpayer under the normative benchmark. Through each of the tax breaks at issue,
Washington State has conferred an entitlement on
Boeing and other Washington State aerospace companies to receive the continued
tax reductions, contingent on satisfaction of the Programme-Siting and
Exclusive-Production conditions. In that
sense, the government is foregoing, and has foregone, revenue that is otherwise
due.
22. In
response to Panel Question 6, the European Union has clarified that its
challenge is directed at the tax incentives, as amended and extended by SSB
5952, "as such"; this challenge is not focused on the application of
these measures during any given point in time or in any specific instance. Having said that, the European Union has also
demonstrated that the challenged tax incentives have already foregone revenue
that became due in the past, revenue that is currently due, and revenue that
will become due in the future. All of
these are relevant to determining the existence of a financial contribution
within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
23. The
European Union has clarified that SSB 5952 not only (conditionally) extended
the expiration date of the existing tax incentives from 2024 through 2040, but
also amended the sales and use tax exemption for construction
services and materials so that Boeing could take advantage of that
exemption in constructing its new 777X manufacturing facilities in 2015 and 2016.
Thus, SSB 5952 has already led to foregoing of revenue in the past, and
this was dependent on satisfaction of the Programme-Siting condition. In addition, Boeing's continued enjoyment of
the B&O tax rate reduction associated with the 777X production and sales is
currently subject to the
Exclusive-Production condition.
24. With
respect to the 2024-2040 period, an entitlement in
favour of Boeing has been created, and, in turn, an entitlement
has been foregone by Washington State, at
present. An interpretation under which
only foregoing of revenue due in the past would constitute a financial
contribution would allow Members to craft prohibited subsidy programs that include
a long time gap between the intended distortion (through the meeting of the
prohibited contingency) and the reward for such conduct in the form of
disbursement of a subsidy, in a manner that would limit the effectiveness of a
challenge under Article 3.1(b).
Moreover, Article 3.2 clarifies that “maintain{ing}” a subsidy programme
tied to the prohibited contingencies violates the SCM
Agreement, even when the financial contribution is yet to be
“grant{ed}”, let alone actually disbursed or used.
2. Benefit
25. The
European Union has demonstrated that the financial contribution in the present
dispute – in the form of forgiveness of tax obligations – is, in the words of
the panel in US – Large Civil Aircraft,
“essentially a gift from the government, or a waiver of obligations due, and it
is clear that the market does not give such gifts”. Thus, there is a benefit because the very
nature of a market precludes the availability of multi-billion dollar gifts to
a commercial actor.
3. Conclusion
on “subsidy”
26. The
European Union, consistent with its burden to establish a prima facie case,
has demonstrated that each of the measures at issue provides a financial
contribution and confers a benefit.
Absent effective rebuttal by the United States, the very nature of a prima facie case requires the Panel to make findings in
favour of the European Union.
27. The
European Union also recalls that the findings it seeks are largely consistent
with the “financial contribution” and “benefit” findings made by the panel and
the Appellate Body in United States – Large
Civil Aircraft. While the
European Union's reliance on these findings certainly does not erase the burden
to establish a prima facie case (which it has
discharged), the goals of predictability and security set out in Article 3.2 of
the DSU, as well as the guidance of the Appellate Body, would warrant the Panel
arriving at findings consistent with those made by the panel and Appellate Body
in United States – Large Civil Aircraft, to
the extent the relevant facts have not changed.
28. The
European Union acknowledges that the United States – Large
Civil Aircraft panel held that three of the tax incentives at issue
did not involve a financial contribution because Boeing was unlikely to use
these incentives. These are the (i)
sales and use tax exemption for construction services and materials, (ii)
leasehold excise tax exemption and (iii) leaseholder property tax
exemption. The panel expressly stated
that its finding was a result of the European Union's claim not being one of a
financial contribution in the abstract, but one specifically of a financial
contribution to Boeing. By contrast, in
the present instance, the European Union alleges financial contribution in the
abstract, warranting a different conclusion.
Additionally, the European Union has also demonstrated that, with the
construction of the new 777X wing assembly plant, which commenced in 2014 and
is expected to be completed in 2016, there is evidence of Boeing having used
the sales and use tax exemption for construction services and materials.
B. The
Aerospace Tax Incentives, as Amended by SSB 5952, Constitute Prohibited
Subsidies Contingent upon the Use of Domestic over Imported Goods
29. As
a result of the Programme-Siting and Exclusive-Production conditions
established in SSB 5952, the aerospace tax incentives, as amended and
extended, constitute prohibited subsidies "contingent ... upon the use of
domestic over imported goods" within the meaning of Article 3.1(b) of the
SCM Agreement. While the European Union
advances both a claim of de jure
contingency and of de facto
contingency, its first and principal claim is that of de jure contingency.
1. The legal standard for demonstrating the
existence of a subsidy contingent upon the use of domestic over imported goods
30. Article
3.1(b) of the SCM Agreement provides that "subsidies contingent, whether
solely or as one of several other conditions, upon the use of domestic over
imported goods" "shall be prohibited".
31. The
United States correctly points out that the French and Spanish texts of Article
3.1(b) employ the terms produits and productos. The
European Union agrees with the United States that the use of the words produits and productos in
the French and Spanish versions is instructive, and the European Union
considers the word "goods" in Article 3.1(b) of the SCM Agreement to be synonymous with the term "products".
32. The
European Union has also indicated its agreement with the United States and
Japan that the word "over", in the text of Article 3.1(b), means
"in preference to", "in excess of" or "more
than". Further, the use of the word
"over" (i.e., "in excess of") in Article 3.1(b) confirms
that no de minimis discrimination is
acceptable under the prohibition in Article 3.1(b) of the SCM Agreement. As soon as a subsidy is contingent upon the
use of domestic over imported goods, competitive opportunities between domestic
and imported goods are distorted, even if no such goods are currently imported.
33. The
European Union has also set out its understanding that the word "use"
in Article 3.1(b) has a broad meaning, including in
response to Panel Question 44. Prior
guidance of the Appellate Body, and the context afforded by other provisions of
covered agreements that employ the word "use", indicate that its
meaning goes beyond simple incorporation of a domestic input in the final
subsidised product.
34. To
the extent that the United States argues that a "good", within the
meaning of Article 3.1(b), must be actually traded, the European Union
disagrees. This argument ignores a
hallmark tenet of WTO jurisprudence that the disciplines on goods protect not
just actual trade in goods as seen or envisioned in the market today, but also competitive opportunities.
In the context of a purely origin-based discrimination, such as mandated
by the legislation at issue, this protection extends to "potentiality to
compete" even in the absence of an actual product which is traded at the
relevant time.
35. If
the United States were correct that actual trade in a product needs to be
demonstrated for it to qualify as a "good" under Article 3.1(b), the
most trade restrictive of import substitution subsidies – i.e., those which
have succeeded in distorting the market so much that they preclude even the existence of competing foreign producers in the
market – would not be disciplined by Article 3.1(b), while less trade
distorting import substitution subsidies would be subject to that
provision.
2. Application of the legal standard to the
facts of this case
36. The European Union fully agrees with the
United States and the third parties that Article 3.1(b) does not
discipline production subsidies.
However, the measures at hand are not production subsidies, but
subsidies contingent on the use of domestic over imported goods, which are
properly within the scope of the prohibition in Article 3.1(b).
37. In
this case, pursuant to the Programme-Siting condition in Section 2 of
SSB 5952, the amended and extended aerospace tax incentives are contingent on
the establishment of a new commercial aircraft manufacturing programme that
uses goods (i.e., fuselages and wings) produced in the United States
(specifically, in Washington State) in the subsidized aircraft. Under this condition, the tax incentives
would not have been extended in duration through 2040 if Boeing had decided to
"use" imported wings and fuselages in the assembly of the 777X, nor
would the scope of the sales and use tax exemption for construction services
and materials have been expanded to cover Boeing's work on the 777X
manufacturing facilities in 2015 and 2016.
38. Likewise,
pursuant to the Exclusive-Production condition, Boeing benefits from the
reduced B&O tax rate for the 777X only so long as it "uses" wings
assembled exclusively in Washington State for the 777X, or any variant
thereof. If, for example, Boeing were to
use any wings made in Japan for the 777X, as
it does for the 787, it would lose its entitlement to the preferential B&O
tax rate with respect to the manufacture and sale of the 777X.
39. In
response to the European Union's arguments in this regard, the United States
asserts that wings and fuselages are not "goods", and that they are
not "used" in the production of the 777X. But the very wording of SSB 5952, itself,
describes wings and fuselages as "products", a term synonymous with
the word "goods". The European
Union refers to the shared understanding of the World Customs Organization, the
United States' Customs authorities, Washington State, Boeing, and Airbus –
outside the context of this dispute – that wings and fuselages are goods. There are real world examples, including the
Boeing 787 and 737, and the Airbus A350 and A380, where aircraft wings and
fuselages have been traded and transported across long distances.
40. While
it is not incumbent upon the complaining Member in a prohibited subsidy dispute
to positively demonstrate nullification and impairment – in the form of prior
existing identifiable competitive opportunity, and its erosion by the
challenged measure – the European Union also demonstrates that prior to the
enactment on SSB 5952, Boeing had considered importing the 777X wing from
Japan, as it currently does for the 787.
The European Union referred the Panel to a November 2013 statement by
Boeing's own Chief Technology Officer, Mr. John Tracy. According to press reports, Mr. Tracy
explained, immediately before the adoption of SSB 5952, that Boeing was
“consider{ing} all other alternatives", and specifically clarified that
such alternatives included "the possibility of taking
production of the wings out of the United States to Japan".
41. The
United States provides details of how Boeing today
intends to produce the 777X. While a
publicly-available technical report by Washington State's Department of Ecology
contradicts the United States' current narrative about this production process,
the European Union considers it unnecessary to enter into a protracted debate
on 777X production. These details are an
irrelevant distraction. It is necessary
to evaluate a challenge to Article 3.1(b) in view of the market situation at
the point in time prior to adoption of a challenged measure.
42. SSB
5952 was adopted, and worded the way it is, precisely in order to take away
competitive opportunity from wing and fuselage producers outside of Washington
State. Therefore, what Boeing or any
other entity does today or intends to do in the future in a market scenario distorted by the
subsidies at issue is irrelevant and extraneous to the issues at hand.
43. The
United States' assertion that the conditions at hand establish the eligibility
parameters for a “production subsidy” is equally erroneous. It is true that SSB 5952 begins by providing
that the subsidized product – a commercial aircraft – must be produced in
Washington State. This aspect, taken
alone, is a hallmark of a production subsidy, which would not be disciplined by
Article 3.1(b). However, the references
to wings and fuselages, which the United States struggles to read out of SSB
5952, convert what would otherwise be a production subsidy into a prohibited
local content contingency.
44. The
Programme-Siting condition provides that the required “fuselages and wings”
cannot be just any type of “fuselages and wings” – rather, they must be
fuselages and wings of the same “airplane program” that must be “fina{lly}
assembl{ed}” in Washington State.
Similarly, the Exclusive-Production condition does not provide only that
“wing assembly”, generally, must take place in Washington State; rather, it
must be the “wing assembly of any version or variant of a commercial airplane
that is the basis of a siting of a significant commercial airplane
manufacturing program in the state”.
Thus, according to the text of the legislation, fuselages and wings must
be produced in Washington State, and these same components must be used in the
final assembly of the subsidized airplane program.
45. The
interpretation of Washington State law is a question of fact before this Panel
that must be considered objectively, and the United States' interpretation
cannot be the correct one. When
interpreting domestic law of a Member, the role of a WTO panel is to determine
whether the description of the functioning of the law, as made by the
respondent, is consistent with the legal structure of that Member. As a matter of Washington State law,
"{s}tatutes must be interpreted and construed so that all the language
used is given effect, with no portion rendered meaningless or
superfluous". The United States'
proposed interpretation would, in fact, render critical parts of SSB 5952
meaningless and superfluous – namely, the references to wings and
fuselages. As such, the United States'
arguments must be rejected.
3. The
violation of Article 3.1(b) is both de jure and de facto
46. The
European Union has established a prima facie case
in respect of its first and principal claim – one of de jure contingency,
with reference to the text of SSB 5952, which expressly sets out a
multi-billion dollar reward for the use of domestic wings and fuselages, and a
corresponding multi-billion dollar penalty for the use of imported wings and
fuselages. The text of SSB 5952 does not
provide, as did the measure considered by the Appellate Body in Canada – Autos, a "multiplicity of possibilities for
compliance" with the Program-Siting and Exclusive-Production conditions
that may "make the use of domestic goods only one possible
means". It provides one and only
one possibility for compliance – the use of domestic wings and fuselages in the
same aircraft that satisfied the Programme Siting condition – and makes the
subsidies contingent on compliance.
Thus, the very text of SSB 5952 demonstrates the de jure
contingency that the European Union alleges.
47. Additionally,
the European Union has identified the following facts, which are demonstrative
of de facto contingency in the present
case:
·
The text of SSB
5952, and in particular the language of the Programme-Siting condition and
Exclusive-Production condition;
·
The statement of
Governor Inslee indicating that "the legislation includes strong
contingency language";
·
The fact that
Boeing currently imports wings for its 787 from Japan;
·
The fact that
Boeing actively considered the possibility of importing the 777X wings from
Japan prior to the enactment of SSB 5952, and formally decided against that
option once SSB 5952 was enacted.
·
The fact that SSB
5952 creates specific multi-billion dollar penalties for
use of imported wings or fuselages, and multi-billion dollar rewards for use of domestic wings or fuselages. This penalty/reward structure was designed to
distort decision-making both at the initiation of the new aircraft programme
(i.e. Programme-Siting condition), and throughout the life of that programme
(i.e. Exclusive-Production condition).
IV. Conclusion and Request for Relief
48. For
the reasons set out in its submissions to date, the European Union respectfully
requests the Panel to find that each of the Washington State tax incentives, as
amended and extended by SSB 5952, constitutes a subsidy that is prohibited
pursuant to Articles 3.1(b) and 3.2 of the SCM Agreement.
49. In
accordance with Article 4.7 of the SCM Agreement, the Panel should recommend
that the United States withdraw the subsidies without delay.
ANNEX B-2
second integrated
executive summary of the arguments of the European Union
I. Introduction
1. In accordance with the Panel's Working Procedures (adopted 7 December 2015), the European
Union now provides an integrated executive summary of the facts and arguments
presented in the European Union's (i) second written submission, (ii) oral
statement at the second substantive meeting, and (iii) responses (and comments
on the United States' responses) to the Panel's questions following the second
substantive meeting.
2. During the course of this
dispute, the European Union has provided evidence and argument demonstrating
that Washington State's aerospace tax incentives, as amended and extended by
SSB 5952[8], confer subsidies that are de jure contingent
on the use of domestic over imported goods, in violation of Articles 3.1(b) and
3.2 of the Agreement on Subsidies and Countervailing Measures ("SCM
Agreement"). The Panel has before
it the text of the legislation (submitted as Exhibit EU-03), which expressly
conditions the provision of over $9 billion in subsidies on the use of domestic
"products" on aircraft manufactured in Washington State. The
European Union has also demonstrated, through additional factual evidence, a
secondary claim of de facto contingency,
also under Articles 3.1(b) and 3.2.
3. Recalling the text of SSB
5952, Section 2 provides (in the "Programme-Siting condition") that
the amended and extended subsidies would not be granted unless a new commercial
aircraft program which uses domestically-made
"products", namely "fuselages
and wings", is sited in Washington State.
Additionally, Sections 5 and 6 (in the "Exclusive-Production
condition") would serve to remove a large portion of one of the most
valuable tax incentives in the package if the aircraft
manufacturer satisfying the Programme-Siting condition were to use any foreign-made
wings in the newly sited aircraft manufacturing facility in Washington
State.
4. This statutory text is
further supplemented by additional factual evidence. Most notably, in testimony to the Finance
Committee of Washington State's House of Representatives just two days prior to
passage of SSB 5952, Governor Jay Inslee explained in the following terms why
he was sponsoring the legislation, and why the legislature should quickly pass
it:
Look, this is pretty
simple what we are looking at here, and that is a simple fact, and that is
the construction of the Boeing 777X and
its carbon fiber wing, and
assembly of that airplane, will be the lynchpin for economic growth
in the State of Washington in the decades to come. We have an opportunity
in the few days ahead of us to make sure that advanced manufacturing of the
carbon fiber wing – the first time we have reversed the outflow of work of this nature from the State of
Washington to bring it back to the State of Washington, we can achieve that in
the next few days. And I can't overstate the significance of this
event. Bringing this wing
back to the State of Washington sets the foundation for an advanced
carbon fiber industrial ecosystem in the State of Washington. When we lost the wing for the Boeing 787,
some thought Washington would lose its lead in composites and advanced
manufacturing. The 787 wing
went to Japan; the second line went to South Carolina. . . .
Today, we are going to reverse that trend with the 777X and its carbon fiber wing built here
in the State of Washington . . . .[9]
5. Governor Inslee's statement
could not have been any clearer – SSB 5952 amended and extended the tax
incentives to the aerospace industry with conditions that will ensure that
Washington State would not, once again, "los{e} the wing" to Japan,
as it did for the 787. Rather, through
the Programme-Siting and Exclusive-Production conditions, Washington State has
"reversed the outflow" of those inputs for Boeing's latest aircraft
programme so that they will be "built" "in the State of
Washington". This was not the
statement of a leader who would have accepted the current United States'
assertions that wings of the 777X could not possibly be imported from foreign
countries. Nor would the Governor have
accepted the novel United States' position that wings are not components of a
plane that are used in aircraft production.
6. The Washington State
legislature passed the Governor's proposed legislation two days later. And, as a result of these conditions, SSB
5952 has already been a big success – and certainly not the "demonstrable
failure" alleged by the United States – in ensuring that the wings and
fuselages for Boeing's next new aircraft programme will be domestic goods.
7. Having summarised what this
dispute is about, it is important to clarify what the present dispute is not
about:
·
Despite the
United States' repeated contentions to the contrary, this dispute is not
about a simple "production subsidy" that provides a financial
contribution and benefit to domestic producers without regard to whether
domestic or imported goods are used in production of the subsidised
product.
·
This is not
a dispute related to contingency on the use of domestic over imported components of wings and fuselages. Rather, the European Union's claim is that
the prohibited contingency in SSB 5952 is based on the use of domestic over
imported wings and fuselages,
which are themselves "goods".
·
This is not
a dispute about the use of objects that could not be considered
"goods". In fact, the United
States, itself, accepts (as it must) that wings and fuselages are traded on a
regular basis, including for large commercial aircraft.
8. With respect to the
"subsidy" element, the United States' response consists primarily of
repeated and erroneous assertions that a prima facie
case has not been established, and ambiguous observations about the types of
evidence the United States might present if there were a prima face
case to rebut. For example, the United
States has made cursory "suggestions" (i) that Washington State's tax
regime has a "complicated structure" that may result in an effect
known as "pyramiding", (ii) that Washington State primarily relies on
a Business and Occupation ("B&O") tax, which is unlike the tax regimes
in other states in the United States, and (iii) that there exist "numerous
product-based, entity-based, use-based, and other similar tax adjustments"
in Washington State. The United States
has not taken a position on how the first two of these assertions should affect
the Panel's determination of the normative benchmarks. On the third, the United States has made
certain belated and erroneous observations in its response to Panel Question
60, which the European Union discusses below.
9. With respect to
"benefit" within the meaning of Article 1.1(b) of the SCM Agreement,
in stark contrast to all WTO panels that have previously considered the issue,
the United States asserts that the existence of tax breaks constituting a
financial contribution within the meaning of Article 1.1(a)(1)(ii), which by
their very nature are a "gift" from the government to the recipient,
does not demonstrate conferral of "benefit".
10. As for contingency under
Article 3.1(b) of the SCM Agreement, all of the United States' arguments are
based on three fundamental flaws – (i) an erroneous definition of
"goods", (ii) an erroneous understanding of "use", and
(iii) a focus on components of wings and components of fuselages
as the relevant "domestic" and "imported" goods at issue,
rather than the "products" actually referenced in SSB 5592 – i.e.
wings and fuselages.
11. In presenting its defense,
the United States interprets both the text of SSB 5952 and that of the SCM
Agreement in a manner that contradicts their ordinary meanings (considered in
context and in light of the relevant object and purpose), while offering no
substantiation for such interpretations.
As for the evidence of de facto
contingency, the United States' strategy has been to rely on assertions and
statements tailor-made for the present dispute, and to casually dismiss
inconvenient evidence from the real world as "imprecise" or
"colloquial references".
12. While the United States has
erred in accusing the European Union of "trying to fit a square peg into a
round hole" in this dispute by characterizing the challenged incentives as
prohibited subsidies (rather than production subsidies), the actual problem
here is that the United States is attempting to drill a hole in the SCM
Agreement so large that any Member could easily avoid the disciplines of
Article 3.1(b). The factual inaccuracies
and legal fallacies associated with each of the US assertions have been
highlighted by the European Union in its submissions. In the following sections, the European Union
briefly summarizes the arguments presented in the European Union's second
written submission and its subsequent submissions
II. The Aerospace Tax Incentives, as Amended by SSB 5952, Constitute
Specific Subsidies
13. The European Union's second
written submission once again details why the tax incentives, as amended and
extended by SSB 5952, constitute specific subsidies within the meaning of
Articles 1 and 2 of the SCM Agreement.
In particular, the European Union has explained that each of the seven
aerospace tax incentives confers a financial contribution involving the
"forego{ing}" of "government revenue that is otherwise
due", within the meaning of Article 1.1(a)(1)(ii) of the SCM
Agreement. For each individual tax
incentive, the European Union has provided details about the relevant normative
benchmark. With respect to
"benefit", the European Union again demonstrated that the tax breaks
are a "gift" from the government that the recipients would not
receive in the market. As for
specificity, there is no dispute that subsidies violating Article 3.1(b) are
deemed "specific" pursuant to Article 2.3 of the SCM Agreement.
A. Financial Contribution
14. The European Union now
summarizes its responses to the United States' (1) arguments regarding the
timing of the tax incentives, and (2) suggestions related to the normative
benchmarks, as they relate to the issue of "financial contribution"
under Article 1.1(a)(1)(ii) of the SCM Agreement.
1. Timing
15. The United States first
hinted at a position, similar to the one it adopted in the United
States – Large Civil Aircraft dispute, that only revenues foregone
in the past would qualify as a financial contribution within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement.
The European Union demonstrated that there is no textual basis for such
a temporal limitation. Further, the Appellate Body has interpreted the
word "foregone" in Article 1.1(a)(1)(ii) to mean "the government has given up an entitlement to
raise revenue that it could 'otherwise' have raised",[10] an action that does not have to occur after
the revenue has become payable. If
accepted, the United States' interpretation would incentivise Members to craft
prohibited subsidy programmes in which the subsidy is received as a delayed
reward for satisfying a prohibited contingency; in particular, the United
States' interpretation could preclude a timely, effective challenge under
Articles 3.1(b) and 3.2 in such circumstances, where the grant is complete and
the firm is already in a position to account for, rely on, and benefit from a
future revenue stream.
16. The United States
subsequently modified its views on the temporal restriction it seeks to impose
on Article 1.1(a)(1)(ii). In particular,
in its response to Panel Question 21, the United States suggested that Article
1.1(a)(1)(ii) may cover the
foregoing of revenue that would have become due in the future within "the
coming year", but not later. The
United States has offered no reasoning for its oscillating positions on
temporal restrictions. Such legal arguments are not only erroneous, but they are internally
inconsistent.
17. In addition, putting aside
the United States' flawed legal interpretation, the European Union has
explained that five of the seven tax incentives have, in fact, actually foregone
revenue in the past, including since the November 2013 entry into force
of SSB 5952. In fact, the United States
does not deny that the following tax incentives have already lowered the taxes
of the Washington State aerospace industry in the past, and continue to do so
in the present: (1) B&O tax rate reduction for the manufacture and sale of
commercial airplanes; (2) B&O tax credit for pre-production development of
commercial airplanes and components; (3) B&O tax credit for property taxes
and leasehold excise taxes on commercial airplane manufacturing facilities; (4)
exemption from sales and use taxes for computer hardware, software, and
peripherals; and (5) exemption from sales and use taxes for certain
construction services and materials.
2. Normative benchmark
18. Until its most recent
submissions, the United States refused to engage in a specific discussion of
the relevant normative benchmarks in the present dispute, other than to
repeatedly assert that the European Union did not identify any such
benchmarks. In fact, the European Union
has identified and detailed such normative benchmarks, beginning with its first
written submission.
19. In its second written
submission, the United States appeared to argue that the pre-existing aerospace
tax incentives initiated under House Bill 2294 ("HB 2294") could
provide the appropriate normative benchmark to determine whether the measures
at issue involve a financial contribution under Article 1.1(a)(1)(ii). In response, the European Union recalled that
a normative
benchmark is the tax rate that would normally apply, taking into account the structure of the
particular tax system. As the panel and Appellate Body correctly
found in US – Large Civil Aircraft, the
0.2904 percent tax is the subsidized B&O tax rate for
commercial aircraft; as such, it cannot be the normative benchmark.
20. The United States also suggested that the various specifically-targeted sales and use tax exemptions offered
by Washington State to entities outside the aerospace industry are somehow
relevant to identification of the normative benchmark. As the European Union has explained, however,
special tax treatment accorded to particular companies or industries does not
reflect "the tax rates that would normally apply". Rather, the tax treatment generally
applicable to all actors engaging in the relevant taxable activities within
Washington State – for example, manufacturing or retail sales in the case of
the B&O tax rate reduction – is what is relevant for identifying "the
tax treatment of comparable income of comparably situated taxpayers".
21. In its response to Question
60, the United States submitted a table of figures which, according to the
United States, "suggest{s}" that the generally applicable tax rates
for the taxes at issue have become the exceptions rather than the general rule,
and therefore cannot serve as the normative benchmark. However, these belatedly submitted numbers do
not warrant the conclusion that the United States seeks. In that table, the United States treats every
instance in which Washington State has not imposed the maximum tax liability
with respect to a particular activity – including even those instances where
Washington State is constitutionally prohibited from imposing a tax – as an
"exemption". Thus, based in
large part on numerous "exemptions" completely irrelevant to an
enquiry under Article 1.1(a)(1)(ii), the United States then claims that a
majority of all revenue in Washington State is subject to
"exceptions", rendering the general tax rates purely notional. In view of the figures relied upon by the
United States, this proposition goes against the Appellate Body's express
guidance that a normative benchmark, "cannot, {...} be an entitlement in
the abstract, because governments, in theory, could tax all
revenues." The European Union
applied corrections to this table, eliminating some instances which are not
foregoing of revenue otherwise due in the sense of Article 1.1(a)(1)(ii), and
arrived at the conclusion that far lower portions of the total revenue in
Washington State are subject to "exemptions" from the general rate.
22. Even the corrected figures
presented by the European Union suffer from two major drawbacks, however. First, these figures do not account for local property taxes or local sales and
use taxes, which are also subject to the property tax exemption, and the two
sales and use tax exemptions at issue. Second, the United States failed to
remove from its calculations the tax exemptions resulting from the very
subsidies being challenged in the present dispute. In United States – Large
Civil Aircraft, the Appellate Body found that this second error
rendered similar United States' figures useless for evaluating the normative
benchmark.
B. Benefit
23. The European Union has
demonstrated that the financial contribution in the present dispute – in the
form of forgiveness of tax obligations – is, in the words of the panel in US – Large Civil Aircraft, "essentially a gift from the
government, or a waiver of obligations due, and it is clear that the market
does not give such gifts". A
"benefit" exists because the very nature of a market precludes the
availability of multi-billion dollar gifts to a commercial actor.
24. In response, the United
States presented
an irrelevant "example", asking the Panel to consider a case where a
tax break would not provide a "benefit" when, "by not taking the challenged tax treatment, the taxpayer qualified
instead for another equal or better tax treatment". Here, the United States appeared to suggest
that, in some instances, it may become possible for the taxpayer to forego the
tax incentive at issue, and instead avail itself of generally available tax
treatment that is more or equally advantageous to that incentive. This, however, would appear to relate to the
relevant benchmark for purposes of the "financial contribution"
analysis, rather than the analysis of "benefit" conferred by a tax
measure already found to provide a financial contribution. Moreover, the United States fails to
demonstrate, or even assert, that the facts of the present case are somehow
similar to this "example".
They are not.
C. Conclusion on
"subsidy"
25. The European Union,
consistent with its burden to establish a prima facie case,
has demonstrated that each of the tax incentives at issue provides a financial
contribution and confers a benefit.
Absent effective rebuttal by the United States, the Panel must make
findings in favour of the European Union.
III. The Aerospace Tax Incentives, as Amended by SSB 5952, Constitute
Prohibited Subsidies Contingent upon the Use of Domestic over Imported Goods
26. As a result of the
Programme-Siting and Exclusive-Production conditions established in SSB 5952,
the aerospace tax incentives, as amended and extended, constitute prohibited
subsidies "contingent ... upon the use of domestic over imported
goods" within the meaning of Article 3.1(b) of the SCM Agreement.
27. The European Union has
explained that, as of the moment SSB 5952 became law in 2013, the amended and
extended tax incentives provided subsidies contingent on the use of domestic
over imported goods. Consequently, the
United States' contention that the European Union "has the burden to
demonstrate that {the} contingency obtains specifically with respect to the
alleged subsidy conferred from July 1, 2024, to June 30, 2040" does not
follow from the European Union's actual claims in this dispute.
28. The
United States errs when it asserts that "the treatment prior to 2024 under any of these measures … is a priori not contingent on any of the conditions introduced
by ESSB 5952". As the European Union has explained on
several occasions, under the Exclusive-Production condition, if a determination
is made – at any point after the Programme-Siting condition was satisfied in
July 2014 – that Boeing has sited any wing assembly outside Washington
State (for any version or variant of the airplane programme that was the basis
for satisfying the Programme-Siting condition), the B&O tax rate reduction
would become inapplicable to Boeing's revenues from that programme (i.e., 777X
program). Additionally, had Boeing not
satisfied the Programme-Siting condition, the amendments extending the sales & use tax exemptions for construction services and materials
to cover all commercial aircraft (not just superefficient airplanes), would not
have taken effect. Thus, the current availability of the B&O tax rate reduction for
the 777X programme, and the current
availability of the sales and use tax exemptions for construction services and materials,
are already contingent on meeting the conditions on SSB 5952, even before 2024.
29. The Panel is faced with subsidies de jure contingent upon the decision by an aircraft producer
to use domestic wings and domestic fuselages for a new aircraft programme,
where a major portion of that subsidy would be lost if even a single wing for
that aircraft programme is imported through the year 2040. While these facts should be determinative of
the question of contingency under Article 3.1(b) of the SCM Agreement, the
United States seeks to obscure the prohibited contingency through a series of
erroneous and irrelevant statements.
A. Three Foundational Errors
Made by the United States
30. The entirety of the United
States' argumentation on contingency is founded on three erroneous propositions
– (i) wings and fuselages are not "goods"; (ii) wings and fuselages
are not "used" on aircraft; and (iii) the phrase "domestic over
imported goods", as it applies to wings and fuselages, requires an enquiry
into the origin of the components of
the wings and fuselages, rather than the origin of the wings and fuselages,
themselves.
1. US' Error #1:
"goods"
31. The United States persists
with its erroneous assertion that wings and fuselages are not "goods",
although (i) the United States has acknowledged that Boeing purchases
"complete fuselages" for the 737; (ii) Boeing has previously
explained (outside the context of this dispute) that it imports wings for the
787; and (iii) SSB 5952, itself, refers to fuselages and wings as "products",
a term that the United States has accepted is a synonym for the legal term used
in Article 3.1(b) – "goods".
32. Originally, the United States claimed that the
protection under Article 3.1(b) would extend only to goods that are actually traded. In
its second written submission, however, the United States conceded that the
protection extends to competitive opportunities
for imported "goods". The
United States qualified that concession with an assertion that the protection
does not extend to "strictly theoretical" opportunities. Putting aside the lack of any textual or
jurisprudential basis to characterize certain competitive opportunities as
"strictly theoretical", there is nothing theoretical about importing
or otherwise purchasing wings and fuselages for a civil aircraft, as even the
United States acknowledges for certain aircraft.
2. US'
Error #2: "use"
33. The United States continues
to assert that wings and fuselages are not "used" on aircraft,
or in the production of aircraft, because they are the output of aircraft
production, rather than inputs.
The United States' erroneous position is based on its false allegations
about the planned production process for the 777X, which – even if true – would
be irrelevant to a de jure
analysis of SSB 5952. As the European
Union has explained, and the United States has not contested, SSB 5952
does not even mention the 777X, but instead references only a new model,
version, or variant of a commercial aircraft with a composite wing and/or
fuselage. For some other large
commercial aircraft, the United States generally agrees with the European Union
that fuselages and wings are inputs which are used in aircraft production. As a result, the US' position on the 777X
production process, even if correct, does nothing to refute the European
Union's de jure claim.
34. Moreover, the United States'
claims about the planned 777X production process are contradicted by statements
made by Boeing and Washington State outside the confines of the present
dispute. For example, according to press reports, Eric Lindblad, the vice
president of 777X Wing Integration, explained that "{t}he wing
subassemblies will {} be moved into a final wing assembly area in the main
building, where they will be turned into full wings" and "finally
put together" before being attached to the aircraft.[11]
3. US' Error #3:
"imported" vs. "domestic"
35. The United States continues
to argue that it is relevant, and even legally determinative, that Boeing may import
components of wings and fuselages
for the sited aircraft without restriction, while still satisfying the
Programme-Siting and Exclusive-Production conditions. But the European
Union is not challenging the subsidies as being conditional on use of
domestic over imported components of
wings and fuselages. The European Union's challenge is clear – i.e. to
satisfy the two conditions, imported wings and
imported fuselages may not be used on the aircraft that is the subject of the siting
decision.
36. The United States complains
that the European Union has not explained "what is the domestic and what
is the imported good for each of the measures at issue". In fact, the European Union has repeatedly
and clearly stated that wings and fuselages are the relevant "goods"
for purposes of determining whether the challenged tax incentives are
contingent upon use of domestic over imported goods, under Article 3.1(b). The United States' attempt to refocus the
Panel's attention on the components of
wings and the components of fuselages – rather
than the components of aircraft – provides an irrelevant distraction. The European Union is the master of its own
claims, and this is simply not a case
about components of wings, nor a case about components of fuselages.
37. The fact is that, however Washington State defines a "wing" or
a "fuselage", those "products" must be either
"manufacture{d}" or "assembl{ed}" in Washington State, and
used on the sited aircraft, in order to satisfy the Programme-Siting and
Exclusive-Production conditions. If, at
the time of its siting decision, Boeing expressed an intention to import
something that Washington State understood to be a "wing" or
"fuselage" for the 777X, or if something that Washington State
understands to be a "wing" is imported today (or anytime before 2040)
for use on the 777X, the subsidy (or a significant portion thereof) would be
lost.
38. As an interpretative matter,
the European Union has maintained a dualist view, wherein any good that is not
"imported" would be "domestic". The European Union submitted that any different
interpretative view would require a panel to examine whether goods are
"domestic" under applicable rules of origin. Given the absence of multilateral rules of
origin, Members would be at liberty to circumvent the discipline in Article
3.1(b) – and those in all other provisions of the covered agreements employing
the "domestic" and "imported" duality – by resorting to
conveniently tailored domestic rules of origin.
39. In Question 72, the Panel
requested the parties to identify "provisions in the covered
agreements" that could further assist in the interpretation of the words
"domestic" and "imported", for the purpose of Article
3.1(b) of the SCM Agreement. In
response, the European Union demonstrated confirmation of its dualist view,
which divides goods into "domestic" and "imported", with
reference to Articles II:2(a), III:1, III:2, and XI:2(c) of the General
Agreement on Tariffs and Trade 1994 ("GATT 1994"); Article 15.3,
footnote 57, and Paragraph I of Annex III of the SCM Agreement; Paragraphs 1(a),
1(d), and 1(g) of Annex C to the Agreement on Sanitary and Phytosanitary
Measures ("SPS Agreement"); and Article 3.3 of the Agreement on
Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
("Anti Dumping Agreement").
40. In its own response, the
United States instead chose to again express general disagreement with the
European Union's interpretative proposal, while not identifying any provision
in a covered agreement (barring a general unexplained reference to the Agreement
on Rules of Origin) that would warrant an interpretation different from the one
proposed by the European Union. Nor did
the United States even attempt to assert an interpretation of its own, let
alone defend one. The United States even
attempted to shield itself behind an assertion that it is the "EU's
burden" to interpret Article 3.1(b), and in particular the meaning of
"domestic" and "imported".
Yet, the Appellate Body has explained that "the burden of
establishing or proving rules of international law cannot be imposed upon any
of the parties, for the law lies within the judicial knowledge of the
Court".
B. Availability of the
Subsidies to Entities Other than Boeing
41. The United States argues that
the availability of the tax incentives at issue to entities other than Boeing
precludes a finding that the subsidies are contingent on the use of domestic
over imported goods, because only Boeing needs to satisfy the conditions. The United States seeks to obscure the fact
that none of the tax incentives, as amended and extended by SSB 5952, would
have taken effect in respect of any of the potential recipients had the
Programme-Siting condition not been fulfilled by Boeing (or another commercial
aircraft producer). Thus, the current
availability of the amended and extended tax incentives enjoyed by all the
recipients is a direct result of the satisfaction by Boeing of the prohibited
contingency in the Programme-Siting condition, on 9 July 2014.
42. Further, nothing in the text
of Article 3.1(b) requires that the entity receiving the subsidy, on the one
hand, and the entity required to meet the prohibited contingency, on the other
hand, must be one and the same, for a measure to violate that provision. If the drafters had intended to include such
a limitation, they could have provided, for example, for prohibition of
"subsidies to an enterprise contingent, whether solely or as one of
several other conditions, upon the use of domestic over imported goods by
that enterprise". They did
not.
C. Production Subsidies, and
the United States' Flawed Examples
43. From the very beginning of
this dispute, the United States has dedicated large parts of its submissions to
defending a proposition that is non-controversial – production subsidies, in
and of themselves, do not result in de jure
violations of Article 3.1(b). The
European Union signalled its agreement with this proposition, in unequivocal
terms, in several of its submissions, yet the United States has persisted with
this argument.
44. When faced
with a claim that a subsidy is contingent on the use of domestic over imported
goods, a Member may not evade the prohibition under Article 3.1(b) simply by
characterizing a challenged measure as a production subsidy. Such a claim should be decided on the basis
of the obligation in Article 3.1(b), and whether the measure violates that
obligation. It should not be decided on
the basis of what each party understands to be a "production
subsidy", which is a term that does not appear in the covered
agreements.
45. With
respect to the United States' assertion that "wings" and
"fuselages" are what makes a vehicle an
"airplane" and
that this needed to be clear in SSB 5952, in the context of an alleged
"production subsidy" for airplanes, the European Union finds it
difficult to believe that, absent such references to wings and fuselages,
Washington State would have faced the risk that recipients of the subsidies at
issue would manufacture vehicles without wings and fuselages and claim them to
be "airplanes" eligible for the subsidy. That did not, for example, appear to be a
concern with HB 2294, which defined the airplane that needed to be
manufactured in Washington State as a "twin aisle airplane that carries
between two hundred and three hundred fifty passengers, with a range of more
than seven thousand two hundred nautical miles, a cruising speed of
approximately mach .85, and that uses fifteen to twenty percent less fuel than
other similar airplanes on the market".
In this definition, there is no reference to wings, fuselages, or
any other components of the airplane.
46. The United States uses its
assertions relating to "production subsidies" to set up a series of
straw-men that it then proceeds to knock down.
The United States creates absurd hypothetical scenarios – most recently
going so far as to invent a "production subsidy" contingent
on importation of two halves of an airplane – which consider whether
a "production subsidy" should
be available to certain producers or importers.
In each hypothetical, the United States first asserts its subjective
view that the subsidy it describes should be characterized as a production
subsidy, and should be consistent with Article 3.1(b). Then the United States goes on to apply what
it erroneously characterizes as the "EU's theory" to the
hypothetical, and concludes that under that alleged "theory" (which
is unrecognisable to the European Union, itself), the subsidy in question would
constitute a de jure violation of Article
3.1(b). Based on that series of
exercises and conclusions, the United States claims that the "EU's
theory" should be rejected.
47. To be clear, the European
Union does not offer a special "theory" on Article 3.1(b). The European Union's position is simply that any subsidy "contingent on the use of domestic over
imported goods" is inconsistent with Article 3.1(b). That understanding applies no matter what the
goods at issue are – i.e. screws, screwboxes missing screws, front halves or
back halves of airplanes, parts of paper planes, or, most importantly for this
case, wings and fuselages of commercial aircraft.
48. The United States has argued that, if accepted,
the European Union's position on the interpretation of the words
"goods" and "use" in Article 3.1(b) would mean that, to be
consistent with Article 3.1(b), "production subsidies" could require
nothing more than that a domestic producer perform "the very last
production step", such as "turning the very last screw" or
"drilling the final rivet", in the territory of the Member providing
the subsidy. This argument is a red
herring, as there are numerous ways to condition a subsidy on significant
domestic production (far beyond "turning the very last screw")
without creating a de jure
violation of Article 3.1(b), as the United States and Washington State already
know.
In fact, the European Union has gone beyond its burden in the present
dispute to identify several ways in which the United States could have offered
production subsidies in the present fact pattern, without resulting in a de jure violation. Unlike
the absurd US hypotheticals involving paper airplanes, airplanes split into
halves, and subsidies contingent on use of imported goods, the examples that
the European Union has highlighted are those that various US states, including
Washington State, have actually employed in order to encourage local
investment, job creation, and production activity.
D. The 777X Production
Process, and the Definition of a "wing"
49. Starting with its first
written submission, the United States introduced several facts relating to the
process allegedly to be employed by Boeing in production of the 777X. These assertions seek to establish that the
777X wings and fuselages do not come into existence as separate goods at any
time before the final assembly of the aircraft. The European Union has demonstrated that these
assertions, tailor-made for the present dispute, are contradicted by assertions
made by Boeing and Washington State outside the present dispute.
50. More importantly, as the
European Union has repeatedly explained, these allegations about the 777X
production process are irrelevant to the de jure claim,
because SSB 5952 does not name Boeing or the 777X programme. It does not even specify the size of the
aircraft that should be sited in Washington State pursuant to the
Programme-Siting condition. Any aircraft
manufacturer could have satisfied the Programme-Siting condition in respect of
any aircraft that had a composite wing or fuselage or both, even if that
aircraft was much smaller than, and markedly different from, the 777X. Thus, assertions as to how Boeing intends to
produce the 777X are entirely irrelevant, at least to the European Union's
first and principal claim of de jure contingency.
51. The United States claims that
the "fact" that Boeing satisfied the Programme-Siting condition in
respect of the 777X without the "use" of "domestic over imported
goods" precludes a finding that SSB 5952 contains contingencies prohibited
by Article 3.1(b). However, this
assertion is again predicated on the same three foundational errors repeatedly
made by the United States, in respect of the words "use",
"goods", and the US'
presumption that the relevant goods for understanding "domestic" and
"imported" are components of
fuselages and components of wings, not
fuselages and wings.
52. Similar to its factually
erroneous and legally irrelevant assertions relating to the production process
of the 777X, the United States dedicates much effort to defining a
"wing". The United States
falsely attributes to the European Union the position that only "complete
finished wings" (and not "complete wings" or "finished
wings") are relevant to the present dispute. Then the United States goes on to supply a
definition of "wing" that is entirely divorced from the text of SSB
5952 and reality. Under that definition,
for example, a wing that does not carry the engines and fuel is not a wing; and
a wing that is not fitted with winglets is not a wing. The European Union has demonstrated the
absurdity of this definition, highlighting that, under that definition, several
real-world aircraft – MD-80, MD-90, Boeing 717, Boeing 737 – have flown for
decades without a "wing".
53. The United States relies on
this flawed definition to postulate that the 787 "wing" was not
imported, and that Governor Inslee was imprecise in describing the
contingencies in SSB 5952 in his testimony before the House Finance Committee,
specifically in asserting that "{t}he 787 wing went to Japan". Similarly, the United States dismisses, as
"colloquial references", all assertions by Boeing and Washington
State outside the confines of the present dispute indicating that the 787 wing
was imported.
54. In any event, it is not
necessary for the Panel to decide the precise definition of a "wing"
or "fuselage" in the present dispute, especially in context of the
European Union's first and principal claim of de jure contingency. What matters is that there is a
"product" called a "wing", and a "product" called
a "fuselage" (which is different from components of whatever Washington
State understands to be a "wing" or a "fuselage") that, if
imported, will result in the loss of the subsidy, or a portion thereof. That is clear from the text of SSB 5952,
itself.
E. Conclusion on Contingency
55. The European Union has
demonstrated in SSB 5952 the existence of a prohibited contingency, under
Article 3.1(b) of the SCM Agreement, with reference to the text of that
legislation, and additional evidence.
The United States has failed to rebut that prima facie
case. The United States' defenses are
based on three foundational errors, and are factually inaccurate and largely
legally irrelevant.
IV. Conclusion and Request for Relief
56. For the reasons set out in
its submissions to date, the European Union respectfully requests the Panel to find
that each of the Washington State tax incentives, as amended and extended by
SSB 5952, constitutes a subsidy that is prohibited pursuant to Articles 3.1(b)
and 3.2 of the SCM Agreement.
57. In accordance with Article
4.7 of the SCM Agreement, the Panel should recommend that the United States
withdraw the subsidies without delay.
ANNEX
B-3
First
integrated executive summary of the arguments of the United States
1. The
EU's entire case is an example of trying to fit a square peg into a round
hole. The hope appears to be that, if
the peg and the hole are not examined closely, no one will notice that the peg
cannot fit. The EU asserts that
Engrossed Substitute Senate Bill ("ESSB") 5952 discriminates against
imported products by requiring the use of domestic over imported goods as a
condition for receiving subsidies. It is
on this basis that the EU challenges seven Washington tax measures as
prohibited by Article 3.1(b) of the Agreement on Subsidies and Countervailing
Measures ("SCM Agreement").
But the relevant conditions in ESSB 5952 have nothing whatsoever to do
with the use of goods, whether domestic or imported. They therefore do not discriminate against
imported goods. Article 3.1(b) does not
prohibit subsidies provided to domestic producers for or in light of domestic
production.
I. Washington's Aerospace Industry and Boeing's Production of
Commercial Airplanes
2. Washington
has emerged as an aerospace hub, and in turn, the aerospace sector is an
integral part of Washington's economy and employment. As of February 2015, there were
1,361 firms in Washington State's aerospace manufacturing and supporting
industries, with 186 of these in the core industry. Nearly 20 percent of U.S. aerospace jobs are
in Washington.
3. A
major part of Washington's emergence and continued role as an aerospace hub is
owed to the presence of Boeing Commercial Airplanes ("Boeing"). Boeing has deep roots in Washington, which
continues to be the center of its operations worldwide. Two of Boeing's three major production
facilities are there. The Renton and
Everett facilities produce the 737NG and 737 MAX; and the 747, 767, 777, and
787 Dreamliner airplanes, respectively.
Development of the 777X is based in Everett, and Boeing plans to produce
the 777X there as well. The third
production facility is in North Charleston, South Carolina. Except for some 787s manufactured after 2012,
all commercial aircraft ever manufactured by Boeing were assembled in
Washington, and all of Boeing's major in-house production operations are in the
United States.
4. Large
commercial aircraft ("LCA") are among the most complex machines ever
built. They consist of tens of thousands
of individual parts, which must be integrated into a single safe, reliable, and
economic system. For this reason,
developing LCA is extremely costly, with development costs running into the
billions of dollars. Many variables
across a long time horizon dictate the success or failure of a program, making
such investments very risky. In this
atmosphere, Boeing requires an elaborate planning system for bringing new
aircraft to market, which can be simplified as occurring in four phases: pre-launch, launch, post-launch, and entry
into service and industrial ramp-up.
5. The
same elaborate planning process was required for the 777X program based out of
the Everett, Washington facility. Boeing
sought to limit costs, risks, and logistical complexities of the sort that had
burdened the 787 program, where aggressive outsourcing of manufacturing
activities contributed to significant production delays and increased program
costs.
II. Washington's Tax System and the Challenged Measures
6. The
measures challenged in this dispute pertain to five categories of Washington
taxes: the business & occupation ("B&O") tax, the retail
sales tax, the use tax, the leasehold excise tax, and the property tax. These taxes form an important component of
the backdrop against which the challenged measures operate. The EU submission gives them short shrift,
but the details are critical to any evaluation as to whether they constitute
financial contributions and confer a benefit within the meaning of Article 1 of
the SCM Agreement, or are "contingent … upon the use of domestic over
imported goods." Accordingly, the
United States describes each of these in greater detail below.
7. The
State of Washington relies primarily on a B&O tax – rather than a corporate
tax or an income tax – for purposes of business taxation. The tax is an excise tax on "gross
receipts," which refers to the gross proceeds of sales, gross income of a
business, or the value of products. The
tax is imposed on the gross receipts of all sales, not just retail sales. No deductions are permitted for the costs of
doing business, such as expenses for raw materials, wages paid to employees, or
component parts manufactured by others that are incorporated into a product
being sold. In addition, the B&O tax
does not vary depending on the profitability of the taxpayer.
8. Washington
also has a retail sales tax, which is its principal tax source (i.e., of all revenue, including both business and
non-business tax revenue). This tax
applies to sales to consumers of tangible personal property, as well as the
sale of certain services, including construction services (e.g.,
constructing and improving new or existing buildings and structures), some
personal services, and other miscellaneous services. The Washington retail sales tax rate has two
components: the state component, which
is equal to 6.5 percent, and the local component, which varies by
jurisdiction. Local governments within
Washington have the authority to set their own retail sales tax rates, but both
components are administered by the State.
9. The
use tax is a tax due on the use of goods or services to the extent that the
user has not paid Washington sales tax or "a legally imposed retail sales
or use tax…to any other state, possession, territory, or commonwealth of the
United States, any political subdivision thereof, the District of Columbia, and
any foreign country or political subdivision thereof." For example, use tax is due if goods are
purchased in another state that does not have a sales tax, or has a sales tax
rate that is lower than that of Washington.
The tax is imposed on the privilege of using as a consumer specified
goods or services in Washington.
10. Washington
also has a property tax. Under RCW
§ 84.36.005, "{a}ll property now existing, or that is hereafter
created or brought into this state, shall be subject to assessment and taxation
for state, county, and other taxing district purposes." Thus, all real and personal property is
subject to tax. However, a number of
exceptions to this general rule apply.
Property tax rates vary among territorial subdivisions of
Washington. However, the Washington Constitution
limits the regular (i.e.,
non-voted) combined property tax rate to 1 percent of market value.
11. Washington
also has a leasehold excise tax. As
noted above, property owned by federal, state, or local governments is exempt
from the property tax. However, when
private parties lease such property, they are subject to the leasehold excise
tax. In effect, the leasehold excise tax
imposes a tax burden on persons using publicly owned, tax-exempt property
similar to the property tax that they would pay if they owned the
property. The 12 percent rate is then
multiplied by an additional tax, which is currently set at 7 percent. Thus, the total leasehold excise tax rate is
12.84 percent of the rent paid for the property.
III. The Challenged Measures and Conditions in ESSB 5952
12. The
EU challenges seven measures in this dispute, each of which provides for
certain tax treatment under the law of the state of Washington: (i) the 0.2904
percent B&O tax rate, (ii) the B&O tax credit for aerospace product development;
(iii) the B&O tax credit for property taxes; (iv) the sales and use
tax exemption for computer hardware, software, and peripherals; (v) the sales
and use tax exemption for construction services and materials; (vi) the
leasehold excise tax exemption for port district facilities, and (vii) the
property tax exemption.
13. The
challenged measures have several important features. The first feature is general availability on
a non-discriminatory basis. Although the
EU submission focuses on Boeing, none of the challenged measures refers to
Boeing explicitly. Rather, they set out
tax treatment that is available to any eligible company in Washington. For example, non-U.S. airplane manufacturers,
and suppliers to such companies, are eligible for the challenged tax
treatment.
14. The
second feature is silence with respect to the use of domestic over imported
goods. None of the challenged measures
distinguishes between domestic and imported goods, let alone condition
availability on the use of domestic over imported goods. This is true of ESSB 5952 as well.
15. The
third feature is changes in conditions for eligibility. In 2006, 2008, and 2013, Washington State
enacted legislation that affected the availability of the challenged tax
treatment by expanding the class of companies that could claim such treatment.
16. The
EU challenges these measures "as amended and extended" by ESSB
5952. In 2013, Washington enacted ESSB
5952, which would extend aerospace-related tax measures if and when a significant
commercial airplane manufacturing program was sited in the state. The Washington legislature noted that ESSB
5952 served its "specific public policy objective to maintain and grow
Washington's aerospace industry workforce."
17. ESSB
5952 contains two provisions that the EU alleges are relevant to this dispute:
an Initial Siting Provision and a Future Siting Provision. Both are silent on the use of domestic over
imported goods, and indeed do not draw any distinction between domestic and
imported goods. They contain no text
that requires the use of domestic over imported goods, nor even encourages
it. They therefore do not result in any
discrimination against imported goods.
18. Rather,
the Initial Siting Provision requires that certain manufacturing activities
occur in Washington. Under the Future
Siting Provision, the continued applicability of the 0.2904 percent B&O tax
rate for 777X sales (because the 777X is the program that triggered the Initial
Siting provision) depends on "final assembly and wing assembly" – a
narrow category of manufacturing activity – taking place in Washington.
IV. The EU Ignores its Burden of Proof as the Complainant in a New
Dispute
19. As
the complaining Member, the EU of course bears the burden of demonstrating that
the challenged measures are subsidies within the meaning of Article 1 of the
SCM Agreement, and that they contain a "contingency" – i.e., a relationship of "contingency," or a state
of "dependen{ce} for its existence on something else." It is also required to demonstrate that this
"contingency" is "upon the use of domestic over imported
goods." Each of these showings
consists of several elements, and the EU bears the burden of proving each.
20. Yet,
the EU ignores this burden, seeking to establish the alleged import
substitution contingency with conclusory assertions, unsupported assumptions,
and references to US – Large Civil Aircraft, a
separate dispute in which the EU failed to demonstrate that any of the
challenged measures are prohibited under Article 3.1(b). Such arguments are insufficient to establish
a prima facie case. This is only confirmed by the fact that the US – Large Civil Aircraft panel addressed facts as they
existed in the 2004-2006 period, rather than the time of this Panel's
establishment in 2014, and the current dispute involves measures that differ
from those at issue in the other, separate dispute. The EU's claims fail as a result of it not
even attempting to allege and prove with evidence each of the elements of its
claims.
V. The EU Fails to Demonstrate that Any of the Challenged Measures
Is a Subsidy under Article 1.1 of the SCM Agreement
21. The
EU does not even attempt to make a prima facie
case that the challenged measures involve financial contributions that confer a
benefit. In fact, the EU simply assumes,
without support – and it asks the Panel to assume – that the challenged
measures are subsidies within the meaning of Article 1 of the SCM
Agreement.
A. Financial
Contribution
22. The
EU alleges that each of the challenged measures involve revenue foregone by
Washington during the time period from July 1, 2024 – July 1, 2040. However, the EU fails to establish that any
such financial contribution exists, and therefore fails to make a prima facie case.
23. To
show a financial contribution, the EU relies on the findings in a separate
dispute, US – Large Civil Aircraft. Yet the EU ignores the fact that in that
dispute, three of the challenged measures were in fact found not to be subsidies because the panel found that the EU
failed to establish the existence of a financial contribution. The EU also ignores that the US – Large Civil Aircraft panel's findings pertain to a
different time period (i.e., prior to
2007), and cannot support a finding that revenues supposedly to be foregone
after July 1, 2024, result in a present subsidy.
24. Indeed,
where an allegation is specific to a particular recipient of an alleged
subsidy, it is normally necessary for that recipient to have actually used or
exercised that fiscal incentive. For
some of the measures, the EU does not even allege use by
Boeing.
25. The
EU seems unaware, or it intentionally glosses over the fact, that references to
past findings in US – Large Civil Aircraft cannot
substitute for evidence in this dispute.
The EU also fails to analyze Washington's unique B&O tax system and
establish, in light of such analysis, a normative benchmark against which
alleged revenue foregone can be compared.
B. Benefit
26. As
discussed above, the EU has failed to establish a prima facie case
that any of the challenged measures involves a financial contribution. It would seem to be a potential future
benefit that would be enjoyed, if at all, 10 years from now. The EU, however, has not explained what it
believes to be such a future financial contribution and benefit. Thus, it automatically follows that the EU
fails to establish that any benefit is conferred by such financial
contributions.
27. In
this regard, it is noteworthy that the EU has not even attempted to establish
benchmarks for any of the challenged measures, as is its burden. Rather, the EU's benefit arguments consist of
citations to other panel reports and the unsupported arguments related to
financial contribution. Accordingly,
there is no valid "benefit" argument for the United States to rebut,
and the EU has failed to establish a prima facie
case.
VI. The EU Fails to Establish that Any of the Challenged Measures is
Contingent Upon the Use of Domestic over Imported Goods as Prohibited by
Article 3.1(b) of the SCM Agreement
28. The
discipline of Article 3.1(b) is focused and specific. It prohibits the granting of subsidies that
are contingent upon the use of domestic over imported goods. Yet the measures challenged here do not
address the use of goods at all, let alone require the use of domestic over
imported goods as a condition for any particular alleged subsidy. Rather, they provide specified tax treatment
to persons that conduct certain activities (e.g., certain
types of manufacturing, retailing, R&D) in Washington. They are available to all companies that do
business in Washington, whether headquartered in the United States, the EU, or
elsewhere – and regardless of whether they sell goods for use in the supply
chains of Boeing, Airbus, or another company.
29. To
establish its claims under Article 3.1(b), the EU must demonstrate that a
measure established to be a subsidy is contingent upon the use of domestic over
imported goods. The EU argues that the
alleged subsidies are contingent on the use of domestic over imported goods in
breach of Article 3.1(b) of the SCM Agreement because of two conditions in ESSB
5952 regarding the siting of certain manufacturing operations related to a
commercial airplane program. The EU's
argument fails for several reasons.
30. First,
the EU incorrectly states that the text of ESSB 5952 "expressly
condition{s}" the challenged tax treatment on the use of domestic over
imported goods. The EU states that under
two provisions in ESSB 5952, the Initial Siting Provision and the Future Siting
Provision, "all of the aerospace tax incentives . . . are expressly conditioned on the use of domestic over imported
goods in the final assembly of the aircraft." In fact, these provisions – and the statutes
challenged by the EU – are silent on the use of domestic over imported goods,
and indeed do not draw any distinction between domestic and imported
goods. They merely extend the tax
treatment for companies that perform certain production and non-production activities
in Washington if and when a significant commercial airplane program is sited in
the state.
31. Specifically,
the Initial Siting Provision states that, for the expiration dates of the
challenged tax measures to be extended, Washington's Department of Revenue
("DOR") must first determine that a company has made a final decision
to "commence manufacture" of a new model or variant of a commercial
airplane, including the wings and fuselage of a new model or variant of a new
commercial airplane, in Washington. The
Future Siting Provision partly revokes this tax treatment if DOR determines
"that any final assembly or wing assembly" of that new model or
variant "has been sited outside the state of Washington." These provisions do not implicitly, much less
"express{ly}," require the use of domestic over imported goods, as
the EU asserts. In fact, they do not
mention the use of goods at all.
32. Second,
the EU's argument assumes, without support, that ESSB 5952 requires the
separate production of fuselages and wings for use in the production of
commercial airplanes. It does not. ESSB 5952 is silent on the how the
manufacture and assembly of fuselages and wings fits into the overall
production process of a commercial airplane.
It does not require manufacturers to produce fuselages or wings as
finished intermediate goods that can be "used" in downstream
production.
33. And
Boeing, in fact, does not do so. 777X
fuselages and wings never exist as discrete, standalone goods that are
subsequently "used" in a downstream production process. In fact, during the final assembly process,
parts of the fuselage and parts of the wing are joined to each other before a
complete fuselage or complete wing is produced.
In short, the 777X's fuselage and wing are elements of the output of the
final assembly process (that is, the manufacture of a commercial airplane), not
goods used as inputs to that process. In
no case does Boeing purchase (or otherwise "procure") complete wings
from a supplier. Therefore, the EU's
whole case is dependent on a false premise – that fuselages and wings are goods required to be used in the production of a commercial
airplane.
34. Third,
the EU relies on an incorrect interpretation of Article 3.1(b) of the SCM
Agreement. Article 3.1(b) is focused and
captures a specific type of subsidy: it prohibits subsidies
"contingent … upon the use of domestic over imported
goods." However, Article 3.1(b)
does not discipline subsidies provided to domestic producers for their domestic
production. This interpretation is
confirmed by Article III of the GATT 1994.
Article III:8(b) of GATT 1994 establishes that providing subsidy to
domestic producers for production activities in the grantor's territory cannot
be equated with providing a subsidy advantaging domestic over imported
goods. And because disciplining
subsidies contingent upon use of domestic over imported goods is an area of
overlap between Article 3.1(b) of the SCM Agreement and Article III of the GATT
1994, Article 3.1(b)'s prohibition on subsidies contingent upon the use of
domestic over imported goods also cannot be equated with subsidies provided for
domestic production. Therefore, even
ignoring the many other flaws in its arguments, the EU's claims also
necessarily fail on this basis because, at best, the EU can only even attempt
to show a subsidy provided for domestic production.
35. Fourth,
the EU argument assumes, without support, that 777X fuselages and wings are
saleable or traded "goods" capable of importation. Prior Appellate Body guidance confirms that
"goods" within the meaning of Article 3.1(b) must be understood as
products that are traded, and therefore capable of being imported. This necessarily excludes 777X fuselages and
wings, which are not available in a commercial setting. In short, 777X fuselages and wings are not
goods within the meaning of Article 3.1(b).
36. Fifth,
the EU fails to establish that the "geared to induce" standard is
appropriate in the context of Article 3.1(b), much less demonstrate with
evidence that it is met in this case. In
its brief argument, the EU states that the challenged measures are "geared
to induce" the use of domestic over imported goods. The EU does not establish that this standard,
which was endorsed in the context of Article 3.1(a), is appropriate in the
context of Article 3.1(b). Once again,
even aside from the fact that the 777X fuselage and wings do not constitute
"goods" that Boeing would "use" within the meaning of
Article 3.1(b), the evidence shows the challenged measures were not anticipated
to, and did not, affect the proportions of domestic and imported content in the
777X.
37. By
the time Washington was considering ESSB 5952, it was clear that Boeing would
produce the 777X, as it has every model of commercial airplane throughout its
100-year history, in the United States.
Moreover, ESSB 5952 has not prevented Boeing from planning to import
significant foreign content for the 777X.
Other Washington taxpayers too will receive the identical tax treatment
challenged by the EU despite there being no restrictions on their use of goods,
whether domestic or imported. In fact, a
retailer selling exclusively imported commercial airplane components that it
manufactured abroad would be entitled to the tax treatment challenged by the
EU. The EU thus fails to establish a prima facie case, and the evidence actually contradicts its
theory.
VII. Conclusion
38. The
EU fails to make a prima facie case
with respect to each of the elements of its claims, and with respect to each of
the seven challenged measures. All of
the EU's arguments, moreover, are based on an incorrect interpretation of
Article 3.1(b) of the SCM Agreement that conflates subsidies that are
contingent upon the use of domestic over imported goods with measures that are
contingent on domestic production.
Accordingly, and for the reasons as set out above, the United States
requests that the Panel reject the EU's claims and find that the challenged
measures are not inconsistent with the U.S. obligations under Article 3.1(b) of
the SCM Agreement.
Executive Summary of U.S.
Opening Oral Statement at the First Substantive Meeting of the Panel with the
Parties
I. Introduction
39. The
EU's entire case, which alleges that the measures at issue are
import-substitution subsidies prohibited by Article 3.1(b) of the SCM Agreement,
is an effort to force a square peg into a round hole.
II. The EU's failure to establish each element of its claims
40. The
EU bases its claims on conditions – what the United States refers to as the
Initial Siting Provision and the Future Siting Provision – that it alleges
require the use of domestic over imported goods. In fact, the EU goes so far as to assert that
the challenged measures "are expressly conditioned on the use of domestic
over imported goods." However, in
reality, the siting provisions by their plain language address only the scope
of manufacturing that will take place in Washington. Neither provision addresses the use of goods
at all, much less the domestic or imported character of goods that are
used. This is evident from the explicit
text of the Initial Siting Provision and the Future Siting Provision, and
illustrated by the fact that the 777X will consist of a great deal of imported
content, as well as domestic content from U.S. states other than Washington.
41. Beyond
the EU's incorrect characterization of ESSB 5952, the EU's meager submission
does nothing to lay out the relevant facts or link them to the WTO provision,
Article 3.1(b) of the SCM Agreement, that it invokes. It does not describe the operation of the
multiple measures it challenges. It does
not establish that the challenged measures confer a subsidy within the meaning
of Article 1 of the SCM Agreement. It
does not explain how, based on the customary rules of interpretation of public
international law used for interpreting the covered agreements, the analysis
should proceed. This falls short of a
complaining party's burden to present a prima facie
case with respect to each element of its claims. And, as witnessed by the submissions of the
United States and the third parties, the EU's many omissions have not obscured
the fact that its claims rely upon multiple distortions of Article 3.1(b).
42. The
EU also does not attempt to show that, if the Initial Siting Provision or the
Future Siting Provision did require the "use" of fuselages or wings,
one or both of those conditions would require that such fuselages or wings be
domestic instead of imported. This is
another example of the EU's silence on necessary elements of a prima facie case under Article 3.1(b).
43. The
EU fails to explain why the 777X fuselages and wings are "goods"
within the meaning of Article 3.1(b). In
not addressing this element, the EU simply ignores inconvenient facts, such as
that there are no buyers and sellers of 777X fuselages or wings, 777X fuselages
and wings never exist in their completed forms separate and apart from the
product that they are supposedly used to produce, i.e.,
the finished airplane.
44. The
EU also invokes a "geared to induce" standard endorsed by the
Appellate Body only in the context of Article 3.1(a), but makes no effort to
establish its proper application in the context of Article 3.1(b) or to prove
that such a standard is met based on evidence in this dispute.
45. Another
example of the EU's cursory treatment of the elements of its claims is its
failure to identify the alleged financial contribution, including a normative
benchmark, and benefit for each challenged measure. Instead, the EU points to a report in a
different dispute – a report, the United States notes, in which the panel
rejected the EU's contention that three of the tax measures challenged in this
dispute were subsidies, and which examined a period nearly 20 years earlier
than the year in which alleged revenue foregone in this matter is alleged to
begin. The EU then attempts to
improperly shift the burden to the United States to prove that such measures
are not subsidies. Nothing requires a
respondent to rebut a case the complaining party has not made in the current
dispute.
III. The sweeping systemic consequences of the EU's interpretation of
Article 3.1(b)
46. The
EU's interpretation of Article 3.1(b) would also have dangerous systemic
consequences and would be at odds with the text of the provision, its context,
and the object and purpose of the Agreement.
For example, by seeking to frame the final stages of a production
process as making "use" of "goods," the EU's theory would
effectively turn every subsidy for production in the grantor's territory into a
prohibited import-substitution subsidy.
As nearly all of the third party submissions in this dispute make clear,
this is not the proper interpretation of Article 3.1(b).
47. For
example, as Canada points out, Article 6.1 and Annex IV:3 of the SCM Agreement
demonstrate unambiguously that subsidies tied to production of a given product,
without more, are not prohibited.
Rather, they are properly the subject of a serious prejudice analysis
under Article 5.
48. Australia
observes that "it is important that the distinction is retained between
the permitted payment of a subsidy to domestic producers and a subsidy which is
contingent on the use of domestic over imported goods."
49. Similarly,
Brazil notes that, given that Article III:8(b) of the GATT 1994 states that
Article III does not prevent the payment of subsidies exclusively to
domestic producers – which the United States addressed in its first written
submission – "it would be incongruous to interpret Article 3.1(b) of the
SCM Agreement to prohibit a measure simply based on the measure's link to
domestic production."
50. Japan
notes that among the "deficiencies" in the EU's analysis is the
failure to recognize that "a law stating that a subsidy is contingent upon
the domestic ‘siting of' a certain program is different from a law stating that
subsidy is contingent upon the ‘use of 'the domestic product."
IV. The relevant facts do not support the EU's case, and in fact
undermine it
51. The
EU has invoked a provision that applies narrowly and in very specific factual
situations. However, in this case, the
measures bear none of the hallmarks of import-substitution subsidies. For example, the company whose behavior they
were supposed to influence – Boeing – can use the tax measures despite planning
to source much of the content for the 777X from outside the United States and
from U.S. states other than Washington.
52. This
is the case because the Initial Siting Provision and Future Siting Provision
pertain only to the location of certain manufacturing activities. They do not distinguish between domestic and
imported goods, and have nothing to do with import substitution. There is no evidence that either the Initial
Siting Provision or Future Siting Provision is structured to discriminate
against imported goods. They do not, and
for that reason, they have not had that effect.
53. Moreover,
companies other than Boeing can also use the tax measures without having to
fulfill local content requirements or even meet production conditions. Indeed, the tax measures are available to
aerospace companies for engaging in a range of activities, some of which are
far afield of the use of goods, such as engineering work and R&D. Thus, the EU's arguments simply ignore how
the challenged measures are structured and designed, and how they operate in
the real world.
54. Thus,
the siting provisions themselves do not support the contention that any alleged
benefits are contingent on the use of domestic over imported goods. Moreover, the factual evidence lends no
support to the EU's allegation that the Initial Siting Provision and Future
Siting Provision are structured to pursue, or do in fact accomplish, import
substitution. Not only does the EU adopt
an improper interpretation of Article 3.1(b), but the facts only further
undermine the theory it advances.
Executive Summary of U.S.
Closing Oral Statement at the First Substantive Meeting of the Panel with the
Parties
55. The
EU's case remains deeply flawed. The EU
proposes an overly broad interpretation of Article 3.1(b) of the SCM Agreement
that is inconsistent with the ordinary meaning of the provision as a whole, its
context, and the object and purpose of the treaty.
56. The
EU also refuses to take account of the facts, which rather than support the
EU's case, undermines and contradicts it.
Instead, the EU relies on a range of false premises, including the
notion that a wing for the 777X as a practical matter can be used or imported
as a separate object prior to final assembly.
57. The
EU emphasizes its de jure argument, which it
identifies as its primary argument, and in which case the EU is required to
show that the subsidy is contingent on the use of domestic over imported
goods. However, the conditions it cites
say nothing about "goods" at all, but instead talk about the
commencement of manufacture, final assembly, wing assembly – all manufacturing
and production activities which have no explicit or implicit reference to the
use of goods.
58. The
United States has explained that these are very predictable ways of defining
the scope of the domestic manufacturing activity that a granting member would
expect to take place in its territory to qualify for the tax treatment. There is no aspect of the SCM Agreement that
would require any production or manufacturing subsidy to be granted only if it
required that nothing more than the last screw was turned. Such an interpretation would turn virtually
every manufacturing or production subsidy into an import substitution
subsidy.
59. The
EU, in its closing statement, refers to statements it thinks show that Boeing
might have, or there would have been, some competitive opportunity in which the
wing would be imported for the 777X. We
understand this to be an effort to prove a de facto
claim. But the EU's notion that the
conditions of ESSB 5952 resulted in import substitution is divorced from
reality and from what could have taken place.
60. The
EU also asserts that the U.S. position that wings and fuselages are not used in
aircraft is contrary to actual practice occurring for 100 years. The EU is relying on the definition of the
terms "wings" and "fuselages," but these definitions say
nothing about their use in the aircraft production process, and nothing about
whether the fuselages or wings need to be "used" as "goods"
in the 777X.
61. Turning
to the EU's assertion that Boeing produces and assembles a wing, and then uses
that wing to assemble the aircraft – that is not true. Boeing does not assemble a wing and then use
that to assemble a final aircraft. A
wing and a fuselage are never used prior to the final aircraft being created.
62. Lastly,
the EU is suggesting that you can subsidize airplane production and asking why
the text of ESSB 5952 specifies anything else.
But the United States has made it clear that the text of ESSB 5952
specifies the scope of production expected in producing an airplane, i.e., what it means to produce an airplane.
ANNEX
B-4
SECOND
integrated executive summary of the arguments of the United States
1 Executive Summary of U.S.
Second Written Submission
1. This dispute, ultimately,
will turn on the Panel’s answer to a simple question: whether a measure that allows a manufacturer
to receive certain tax treatment while still being able to import all of the parts used in the production of the product at
issue, can nonetheless be considered a subsidy that is "contingent on the
use of domestic over imported goods." In the U.S. view, it is obvious that
it cannot. The structure, design, and
actual operation of ESSB 5952 lend no support to the EU’s allegations of
import-substitution contingencies.
Boeing’s decision to site the 777X manufacturing program in Washington
led to the fulfillment of the First and Second Siting Provisions, even though
Boeing plans to use a wide range of imported components for the 777X, including
on its fuselage and wings. Furthermore,
even if all the parts used to manufacture the
777X were fabricated outside the United States, Boeing could still satisfy the
two Siting Provisions. Companies other
than Boeing are eligible for the alleged subsidies without having to fulfill
any conditions at all. Thus, if ESSB
5952 were an import-substitution policy instrument – which is not the case – it
would be a demonstrable failure.
2. This latter point should
come as no surprise. In reality, ESSB
5952 was not designed and structured to require the use of Washington-origin
goods instead of goods made elsewhere.
In other words, assuming arguendo that
the challenged measures are subsidies, ESSB 5952 establishes the conditions for
a domestic production contingency, rather than an import-substitution contingency inconsistent with Article
3.1(b) of the Agreement on Subsidies and Countervailing
Measures ("SCM Agreement"). As such, the measures at issue in this
dispute, if found to be subsidies, might be actionable under Part III of the
SCM Agreement, but are not prohibited under Part II.
3. Third parties have expressed
strong reservations with the EU’s view that a measure contingent on the
production of a finished good, including its major structural elements, should
be treated as contingent on the use of domestic over imported goods for
purposes of Article 3.1(b). As they have
noted, this approach appears to result in all or virtually all production
subsidies being treated as prohibited import substitution subsidies.
4. The EU now acknowledges that"{p}roduction
subsidies, which the United States defines as ‘the payment of subsidies to
domestic producers for engaging in production activities in the grantor’s
territory’, are not prohibited by Article 3.1(b)
of the SCM Agreement." However, the EU
tries to walk a tightrope between production subsidies and import-substitution
subsidies by arguing that ESSB 5952 would be fully consistent with Article
3.1(b), were it not for the combination of specific references to finished aircraft
and fuselages and wings in the definition of a "significant commercial
aircraft manufacturing program, "used in the First Siting Provision and
the reference to "wing assembly" in the Second Siting Provision. According to the EU, this combination alone
converts what would otherwise be a production subsidy into a prohibited local
content contingency.
5. The EU’s position, however,
precludes Members providing production subsidies that define the scope of
required domestic production activity in terms of specific elements of the
output. Under this approach, a
production subsidy would only be permitted to define the eligible recipients by
requiring a producer to perform the very last production step (perhaps by turning
the very last screw) and nothing more.
6. It is not just legal
principles that disprove the EU’s arguments, but the actual facts of Boeing’s
777X program. As the Boeing Expert
Statement explains, fuselages and wings are "elements of the output of the
production process"– not inputs used in the production of airplanes. The ordinary meaning of the word "airplane,"
as expressed in dictionaries and regulatory practice, confirms that a fuselage
and fixed wings are fundamental to what makes an airplane an airplane. As the Appellate Body found in Canada – Autos, if the use of domestic over imported goods is only "one possible means" of satisfying the
requirements for obtaining a subsidy, that would be "insufficient for a
reasoned determination of whether a contingency ‘in law’ on the use of domestic
over imported goods exists." In this case, the 777X program demonstrates
that there is at least indeed one such means for satisfying the two Siting
Provisions, which shows definitively that the use of domestic over imported
goods is not required, in law or in fact, by ESSB 5952.
7. In its de jure arguments,
the EU attempts to brush this evidence aside – even though the Appellate Body
in Canada – Autos criticized an analysis of
de jure contingency that ignored
real-world evidence regarding the actual operation of the measures. In its de facto arguments,
the EU never discusses the elements of such a de facto analysis
as described by the Appellate Body.
Instead, the EU merely asserts that ESSB 5952"rewards "the use
of domestic over imported goods and "penalizes" the failure to do
so. But this argument fails because it
assumes that the alleged subsidies are contingent on the use of domestic over
imported goods, which is the conclusion it is supposedly designed to prove. The EU also omits a numerical analysis
analogous to what the Appellate Body considered to be potentially relevant
under a "geared to induce" approach.
Conducting such a numerical analysis confirms that the challenged
measures are not contingent on the use of domestic over imported goods.
II. Legal Standard: A
Contingency is Prohibited Under Article 3.1(b) Only If it Requires the Use of
Domestic over Imported Goods
8. The first major error in the
EU’s case is its incorrect interpretation of Article 3.1(b) of the SCM
Agreement. The parties agree that this
obligation does not prohibit subsidies contingent on the production of goods in
the territory of a Member. Where the
parties disagree, by contrast, with respect to the legal standard, is whether
the fact that a taxpayer can meet a condition without resorting to the use of
domestic over imported goods is sufficient to demonstrate that the underlying
measure is not a prohibited import-substitution
subsidy. The parties also disagree about
the extent to which factual evidence can play a role in confirming such an
interpretation of the relevant measures.
A proper interpretation of Article 3.1(b) establishes that a subsidy is
contingent on the use of domestic over imported goods only if the recipient is required to use domestic over imported goods. That analysis must take into account all sources that elucidate the meaning of the words used in
the measure in question, including relevant factual information regarding the
application of the measure.
1.1.1 A. The Individual Elements of Article 3.1(b)
9. In the context of Article 3.1(b) of the SCM
Agreement, a relation of contingency exists only where the "use of
domestic over imported goods" is required to receive the alleged
subsidy. In Canada –
Autos, the Appellate Body applied this principle in the context of
Article 3.1(b). According to the
Appellate Body, if there is a "multiplicity of possibilities for
compliance" with a subsidy’s "condition{s} for eligibility," only
some of which involve the use of domestic over imported goods, then the subsidy
is consistent (at least de jure) with
Article 3.1(b).
10. The EU attempts to resist
this conclusion regarding its burden of proof by arguing that the reasoning in Canada – Autos applied exclusively to value-added
requirements. However, the SCM Agreement
does not grant a privileged status to import-substitution subsidies that take
the form of domestic value added requirements.
Rather, Article 3.1(b) treats all subsidies alike: they are prohibited only if contingent on the
use of domestic over imported goods.
Accordingly, and contrary to the EU’s arguments, the fact that the
alleged local content requirements in Canada – Autos and
this dispute take different forms under domestic law does not alter the
analytic approach under Article 3.1(b).
11. The United States and the EU
also disagree on the meaning of the word "use" in Article 3.1(b)
of the SCM Agreement. The parties quote
different editions of the Oxford English Dictionary to define the ordinary
meaning of "use," but they mean essentially the same thing. The United States and the EU also cite
largely the same provisions of the SCM Agreement as context. However, the EU errs in two important ways. First, it fails to recognize the relevance of
the context provided by GATT 1994 Article III:8(b). An interpretation of "use" that
resulted in making production subsidies "prohibited" would tend to
render Article III:8(b) inutile, contrary to the principle of
effectiveness. Second, the EU seeks to
characterize the meaning of "use" in Article 3.1(b) as either
"broad" or "very broad." This is a subjective
characterization based on the EU’s judgment, rather than the text of the SCM
Agreement, and is accordingly not useful for purposes of interpretation. The EU also misses an important aspect of the
definitions and examples that it cites:
all connect "use" with a process for achieving a purpose,
which is distinct from the process itself.
To use the non-production examples cited by the EU, subsidies contingent
on the repair, maintenance of modification of merchandise in a party’s
territory would not be prohibited, but requiring the use of domestic goods in
those processes would be prohibited.
12. The parties have also debated
the meaning of the term "goods" as it appears in Article 3.1(b)
of the SCM Agreement. The United States
has demonstrated that the fuselages and wings for the 777X are not tradable in
the sense necessary for Article 3.1(b).
Accordingly, the EU has failed to establish the existence of the
domestic and imported "goods" that it claims are the subject of the
measures at issue.
13. The EU has done nothing to
meet its burden of establishing that the goods on the use of which the subsidy
is allegedly contingent are or would be domestic. This omission is particularly glaring, as the
United States has shown that ESSB 5952 does not require the use of any domestic
parts in assembly of the fuselage or wings.
In other words, Boeing is free to import 100 percent of the parts as
long as assembly occurs in Washington.
The EU has not even argued, let alone proven, that a wing or fuselage
manufactured in this fashion – even if a discrete wing or fuselage existed at
some point in the production process – would qualify as "domestic goods."
14. The dictionary definition of
the word "over" is"{a}bove in degree, quality, or action; in
preference to; more than." The EU argues that the relevant meaning is
"more than" or "in excess of." This position cannot be
reconciled with the context of Article 3.1(b) and is contrary to
interpretations of the term in past panel and Appellate Body reports. If "over" in Article 3.1(b) meant
"in excess of, "the prohibition would apply to subsidies contingent
on the use of domestic goods in excess of
imported goods – using a greater quantity of domestic goods than imported goods
(e.g., 51 percent domestic goods). Conversely, a Member would be free to require
the use of some domestic goods, as long as the
quantity was lower than the amount of imports.
The Appellate Body evinced a different understanding in Canada – Autos.
1.1.2 B. The Evidence for an Analysis Under Article
3.1(b) May Extend Beyond the Text of the Challenged Measures, For Both De Jure and De Facto Analysis
15. The Appellate Body found in Canada – Autos that under Article 3.1(b),"contingency
‘in law’ is demonstrated ‘on the basis of the words of
the relevant legislation, regulation or other legal instrument." It
explained further that "such conditionality can be derived by necessary
implication from the words actually used in the measure." The panel
consulted multiple legal instruments to evaluate the contingency at issue, but
the Appellate Body found that a still broader inquiry was necessary to
determine how the subsidy operated.
16. As an initial matter, where a
complaining party brings a de jure
challenge under Article 3.1(b) of the SCM Agreement, the complaining party
has the burden of establishing what is the "domestic" and what is the
"imported" good for purposes of Article 3.1(b) that are affected by
the measure at issue. This the EU has
failed to do. Instead, the EU appears to
believe that by characterizing its claim as "de jure,"
it is excused from having to address this key threshold issue. That is not the case.
17. The EU is claiming that the
measures at issue are, on their face, contingent on the use of domestic over
imported goods. Thus, the EU needs to
establish as part of any de jure claim
what is the domestic and what is the imported good for each of the measures at
issue. And in determining what, if
anything, is the relevant "good," it is not appropriate to suggest to
a panel that it ignore or blind itself to relevant facts. Yet that appears to be what the EU is
suggesting.
18. Furthermore, as Canada – Autos makes clear, while a de jure
analysis is based on the words of the measure, it does not evaluate them in a
vacuum. A single clause in a piece of
legislation typically takes meaning from the surrounding clauses in the
legislation. If the measure in question
amends previously enacted legislation or codified laws, provisions in that
legislation will also affect the meaning of the words in the measure at
issue. And, finally, the tools that a
Member’s legal system uses to interpret the words in that measure will also
play a necessary role in understanding the "words" for purposes of a de jure analysis.
19. ESSB 5952 points directly to
a number of sources that define its terms.
The legislation itself contains definitions, which also cross-reference
the definitions applicable generally to administration of the B&O tax. The B&O tax definitions, most notably the
definition of "commercial airplane," refer to the regulatory
definitions used by the Federal Aviation Administration, and to "ordinary
meaning," which under Washington law may involve reference to dictionaries
or sector-specific meanings. In
addition, under Washington law,"{g}reat weight is generally accorded to
the interpretation of a statute by the administrative agency which is charged
with its administration." Thus, DOR’s interpretation of ESSB 5952 would
also factor into the overall analysis of its meaning under Washington law.
20. The EU, in fact, acknowledges
that a de jure analysis may involve evidence
beyond the text of a legal instrument that is the subject of a complaining
Member’s claims, provided that such evidence relates to the text of the legal
instrument. However, the EU overstates
its case in arguing that, as a general matter, such evidence "must
necessarily relate to these very words of the relevant legislation." In
fact, as Canada – Autos shows, evidence outside
the scope of any "legislation," which pertains to the actual
operation of a measure, may – and sometimes must – be included in a de jure analysis.
21. As discussed below, that is
the case in this dispute: Boeing does
not use wings or fuselages, domestic or imported, to produce the 777X, even
though Boeing’s 777X siting decisions satisfied the First Siting Provision, and
have avoided triggering the Second Siting Provision. As an indication of DOR’s interpretation of
ESSB 5952, a statute that DOR is charged to administer, this evidence has a
role in the analysis of de jure
contingency, consistent with the approach taken by the Appellate Body in Canada – Autos.
22. In addition, to the extent
that the EU argues that the Panel must complete its de jure analysis
based solely on the language used in the First and Second Siting Provisions,
without using any other interpretive tools,
the EU is incorrect. It
cites no legal support for this position, and the only factual basis it
advances is that "there is no need to examine ‘a particular manufacturer’s
ability to satisfy the requirements of a measure without using domestic goods’,
because the two conditions require the use of specific domestic goods: fuselages and wings." The EU’s argument
in this regard is transparently circular and does not reflect the objective
approach that panels are to take. In
fact, it is only by reference to all of the tools for interpreting ESSB 5952
that the Panel can evaluate the EU’s arguments in a meaningful way.
III. The EU Fails to Establish that the Alleged Subsidies are De Jure Contingent on the Use of Domestic Over Imported
Goods
23. As explained above, to
establish that the challenged measures are de jure inconsistent
with Article 3.1(b) of the SCM Agreement, it is not enough for the EU to assert
that the use of domestic over imported goods is one possible way to receive the
alleged subsidies. Rather, the EU must
demonstrate that receipt of the alleged subsidies is "contingent"
on the use of domestic over imported goods in the sense of being "dependent
for their existence." The EU fails in this regard, and in fact the
evidence shows that it is possible to satisfy the two Siting Provisions while
using only imported parts.
24. The EU argues that the
references to manufacturing or assembly of fuselages and wings in the Siting
Provisions "convert what would otherwise be a production subsidy into a
prohibited local content contingency," but in reality these terms merely
define the scope of production activity required to use the tax treatment
covered by ESSB 5952. As the United
States has explained before, as the two main structural elements of the
airframe, wings and a fuselage together are the essence of the airplane. And, at least in the case of the 777X, they
are not parts of that airplane that are "used" in its production, but
rather are the output of that production process, as we will discuss in further
detail below.
1.1.3 A. The EU Fails to Show that the Text of ESSB
5952 Makes the Use of Fuselages and Wings as Inputs a "Condition" for
Receiving the Alleged Subsidies
25. The EU argues that the
alleged inconsistency with Article 3.1(b) of the SCM Agreement results
exclusively from the combination of specific references to finished airplanes
and fuselages and wings in the definition of a "significant commercial
aircraft manufacturing program," used in the First Siting Provision and
the reference to "wing assembly" in the Second Siting Provision. This combination, according to the EU, "convert{s}
what would otherwise be a production subsidy into a prohibited local content
contingency," and represents the "express conditioning of the grant of a subsidy on use of domestic
over imported inputs."
26. However, the EU’s conclusion cannot be
derived from the words of ESSB 5952, which merely require that both the
aircraft itself, as well as specific elements of the aircraft – i.e., the fuselage and wings – undergo manufacturing in
Washington. Even aside from the question
of whether the measures at issue are subsidies, Article 3.1(b) does not prohibit
defining production subsidies in a way that requires the domestic siting of
manufacturing activity on both the finished product and its defining
elements. Indeed, such a definition
could be useful for excluding manufacturers engaged in minimal productive
activities – including those who would seek to circumvent the production
requirement – from eligibility for domestic production subsidies. Thus, defining production in terms of the
integral elements of the finished product is not, as the EU argues, tantamount
to treating the elements as domestic inputs that must be used instead of
imported inputs. For these reasons, the
EU’s de jure arguments fail.
27. Assuming, arguendo, that
the challenged incentives are subsidies, ESSB 5952 comes into effect following
a determination by DOR that "the siting of a significant commercial
airplane manufacturing program in the state of Washington" has
occurred. In turn, "significant
commercial airplane manufacturing program" is defined as "an airplane
program in which the following products, including final assembly, will
commence manufacture" in Washington:"(i) The new model, or any
version or variant of an existing model, of a commercial airplane; and (ii)
Fuselages and wings of a new model, or any version or variant of an existing
model, of a commercial airplane."
28. ESSB 5952 further states: "{t}he
definitions in this subsection {i.e., RCW
82.32} apply throughout this section unless the context clearly requires
otherwise." With respect to the term "commercial airplane," RCW
82.32.550 states: "‘Commercial
airplane’ has its ordinary meaning, which is an airplane certified by the
federal aviation administration for transporting persons or property, and any
military derivative of such an airplane." Under the Federal Aviation
Administration regulations,"{a}irplane means an engine-driven fixed-wing
aircraft heavier than air, that is supported in flight by the dynamic reaction
of the air against its wings." Webster’s Third International Dictionary, which Washington courts often
consult in their evaluation of ordinary meaning, defines "airplane" as
"a fixed-wing aircraft heavier than air that is driven by a screw
propeller or a high-velocity jet supported by the dynamic reaction of the air
against its wings."
29. RCW 82.32 does not contain specific
definitions of "fuselage" or "wing," but Webster’s Third International Dictionary defines "fuselage" as
"the central body portion of an airplane designed to accommodate the crew
and the passengers or cargo" and "wing" as "one of the
airfoils that develops a major part of the lift which supports a
heavier-than-air airplane." The OED, which the EU cites, defines "fuselage"
as"{t}he central body portion of an aeroplane, to which the wings and tail
unit are attached and which (in modern aircraft) contains the crew and the
passengers or cargo," and "wing" as "one of the planes of
an aeroplane."
30. Thus, by their ordinary
meanings, "fuselages" and "wings" are what makes a vehicle
an "airplane"– the one houses the passengers and cargo and the other
provides the lift that allows the airplane to fly. The ordinary meanings of "fuselage"
and "wing" in particular indicate their status as functional elements
of the finished aircraft, and not as inputs in the aircraft production
process. Accordingly, the references to
fuselages and wings in the First Siting Provision reflect the definitional
elements of an airplane as a means of identifying what constitutes the
manufacture of an airplane in Washington to trigger application of ESSB 5952. These references do not entail an
import-substitution requirement, either by their express terms or necessary
implications.
31. The analysis is similar for
the Second Siting Provision. By
requiring that wing assembly and final assembly occur in Washington for the
0.2904 percent B&O tax rate to continue to apply to the relevant commercial
aircraft manufacturing program, the Second Siting Provision stipulates that
assembly of the whole (i.e., the
airplane) as well as one of the definitional elements of the whole (i.e., the wing) must occur in Washington. Neither the reference to "wing assembly"
nor any other terms in the Second Siting Provision indicate that a wing (or
fuselage) is an input into the airplane production process.
32. One reason that the terms
"fuselage" and "wing" might appear in the text of ESSB 5952
– even though they are by definition elements of an airplane, which is also
referenced in the text of ESSB 5952 – is that Washington decided not to allow a
minimal manufacturing operation to satisfy the two Siting Provisions. Indeed, it is the EU’s interpretation that is
flawed, because it implies that the class of WTO-consistent production
subsidies is limited to those that permit minimal finishing operations. According to the EU, subsidies for the domestic
production of a final product are permissible, but such subsidies immediately
"convert" into prohibited import-substitution subsidies when the
legislator defines the production process to include anything more than turning
the final screw. This view has no basis
in the text of the covered agreements, and indeed is inconsistent with Article
III:8(b) of the GATT 1994.
1.1.4 B. The EU Fails to Show that ESSB 5952 Requires
that Fuselages and Wings Be "Domestic"
33. In addition to the
fundamental flaws in the EU’s efforts to distinguish an airplane from its wings
and fuselage, the EU also fails to meet its burden of establishing that the
First and Second Siting Provisions require that the referenced "fuselages"
and "wings" be domestic.
Otherwise, ESSB 5952 does not require the use of domestic
over imported goods. This omission
provides yet another, independent, reason why the EU has failed to make a prima facie case.
34. Although ESSB 5952 identifies
certain production activities that must be sited within Washington to satisfy
the two Siting Provisions, ESSB 5952 does not draw any distinction between
domestic and imported fuselages and wings.
In addition, as noted above, a taxpayer could satisfy the First and Second
Siting Provisions by using 100 percent imported parts, as long as those parts
(including parts of fuselages and wings) were assembled into an airplane in
Washington. Accordingly, even if, for
the sake of argument, one were to consider fuselages and wings to be "inputs"
or "goods used" in the production of an airplane, ESSB 5952 imposes
no de jure requirement that such fuselages
or wings be "domestic" within the meaning of Article 3.1(b) to
satisfy the two Siting Provisions.
35. This hole in the EU’s
argument is all the more obvious because of the factual circumstances of the
777X. And, as the United States
previously noted, even if all the components of the 777X were fabricated
outside the United States, Boeing would be able to satisfy the two Siting
Provisions simply by assembling all of the imported goods into the finished
aircraft, which would include its fuselage and wings. The EU has proposed that "domestic"
means anything not imported. As a
result, even under the EU’s approach, which is novel, wings and fuselages made
up completely of imported parts would not appear to be domestic goods. Thus, it could not be assumed that the First
and Second Siting Provisions require that 777X fuselages and wings themselves –
even if they ever existed as separate goods – be domestic.
1.1.5 C. The EU Fails to Rebut Factual Evidence
Establishing that the ESSB 5952 Text Does Not Condition the Alleged Subsidies
on the "Use of Domestic over Imported Goods"
36. The United States recalled that
if there is a "multiplicity of possibilities" for compliance with a
subsidy’s "condition{s} for eligibility," only some of which involve
the use of domestic over imported goods, then the subsidy is consistent with
Article 3.1(b) of the SCM Agreement. The
United States has shown that there is at least one very obvious means of
satisfying the First and Second Siting Provision that does not involve the use
of fuselages and wings as inputs into the airplane production process: the 777X manufacturing program. This fact alone demonstrates that the EU’s de jure interpretation of ESSB 5952 is at odds with the
actual operation of the alleged contingencies.
This is strong evidence that the EU misunderstands the legislation.
37. As explained above, the term
"use" in Article 3.1(b) refers to the employment of a domestic good
as an input or instrumentality in a productive process, or enjoyment of a good
for its intended purpose by an end user.
In fact, throughout the SCM Agreement and the covered agreements in
general, the term "use" refers to the consumption of goods or services
in a production process. Thus, Article
3.1(b) covers subsidies that are granted contingent on the employment of a good
as an input or instrumentality in a productive process. But Article 3.1(b) does not cover subsidies
contingent on the creation of the output of such a productive process.
38. In this dispute, the EU
alleges that the First and Second Siting Provisions require Boeing to use
fuselages and wings as "inputs" into the aircraft production
process. The EU further alleges that by
requiring fuselages and wings to be manufactured in Washington, the two Siting
Provisions prevent the importation of fuselages and wings that could otherwise
occur in the absence of the challenged subsidies. However, these allegations
cannot be reconciled with the factual evidence before the Panel. For example, the Boeing Expert Statement
states that fuselages and wings are "elements of the output of the
production process"– not inputs.
And because they are not inputs, they are not "goods" that are
"use{d}"to produce the very airplanes that are the subject of the
First Siting Provision. Accordingly, the
EU fails to demonstrate that ESSB 5952 conditions receipt of the alleged
subsidies on the use of fuselages and wings as inputs into the aircraft
production process. Rather, the facts
show that no such use is required.
39. Furthermore, the EU’s
examples of airplanes other than the 777X that it views as being produced by
using complete fuselages and wings as inputs in the final assembly process are
insufficient to support its assertion that "aircraft could
not be produced" without using fuselages
and wings as inputs. Again, the actual
evidence of the 777X production process shows that they can be and, in fact,
that in the case of the 777X, this is precisely what happens.
40. In conclusion, to make its
case that ESSB 5952 is de jure contingent
on the use of domestic over imported goods, the EU would have to show that the
measure, by its terms, requires the
use of domestic over imported goods.
However, the EU has failed to do so.
Indeed, the express terms of ESSB 5952 indicate that a fuselage and
fixed wings are definitional to what makes an airplane an airplane, and not
simply inputs to be used in the airplane production process. Nor does the legislation require that such
fuselages and wings be "domestic." Boeing itself will not use
fuselages or wings as inputs in the production process for the 777X, which is
the very aircraft program that has satisfied the First and Second Siting
Provisions. In fact, Boeing will use a
wide array of parts for the fuselage and wings that originate outside
Washington, and in many cases outside the United States. Thus, the tax treatment provided by ESSB 5952
is not de jure contingent on the use of
domestic over imported goods.
IV. The EU’s De Facto Article
3.1(B) Claims Are Unsupported and Contradicted by the Evidence
41. As demonstrated above in the de jure analysis, evidence regarding the 777X program
demonstrates conclusively that the First Siting Provision has been fulfilled,
and the Second Siting Provision has been avoided, without any use of domestic
over imported goods. No further factual
information is needed to refute the EU’s claims, whether de jure
or de facto, because a claim under Article
3.1(b) fails if the complaining party does not show, inter alia,
that "the use of domestic goods {is} a necessity and thus . . .required as
a condition for eligibility for "the alleged subsidy. However, should the Panel consider it useful
to further address the EU’s arguments regarding de facto
contingency, this section addresses the many other errors made by the EU.
1.1.6 A. Boeing Has Complied with the First and Second
Siting Provisions – All Without Engaging In Import-Substitution.
42. The EU contends that the
First and Second Siting Provisions "require the use
of specific domestic goods." Yet, it has no coherent explanation for why
this is the case, and the evidence discussed below shows the EU’s contention to
be baseless. The EU has largely ignored
– and asked the Panel to disregard – the facts of the 777X production process,
even though this is the most probative evidence as to what airplane production
activities may satisfy the First Siting Provision and avoid triggering the
Second Siting Provision. The facts of
the 777X production process show that, with respect to the putative "goods"(wings
and fuselages) identified by the EU, Boeing did not propose to use, and has no
plans to use, domestic over imported goods in the 777X program, and the DOR
determination establishes that the program nonetheless satisfied the First
Siting Provision. Thus, the First Siting
Provision did not make eligibility for the ESSB 5952 tax incentives contingent
on the use of domestic over imported goods.
43. The EU has not even attempted
to meet its burden of showing that the goods allegedly subject to the
contingency must be "domestic." There is no basis to assume as
much. The EU asserts that ESSB 5952 has
distorted competitive opportunities for imported 777X fuselages and wings, but
the evidence shows this allegation to be baseless. Boeing could comply with the First and Second
Siting Provisions, and receive the challenged tax treatment, even if every
individual part of the 777X were imported.
Moreover, the histories of the 777X program and ESSB 5952 demonstrate
that the challenged measures did nothing to distort competitive opportunities
for imported goods, whether actual or potential. The United States in its first written
submission recounted the development of the 777X and the program’s production
planning decisions, with details drawn from the Boeing Expert Statement. This evidence establishes that, regardless of
ESSB 5952, there were no actual or potential imported substitutes for the 777X
manufacturing activity Boeing sited in Everett, Washington.
44. For example, Boeing’s key
make/buy and supplier selection decisions were made well in advance of ESSB
5952 and, thus, were not influenced by ESSB 5952. In addition, ESSB 5952 places no conditions
on the location of fuselage or wing structure fabrication, or on the origin of
individual airplane parts. Moreover,
passage of ESSB 5952 had no effect on Boeing’s willingness to use imported
goods or to site fuselage and wing assembly outside the United States. The circumstances surrounding the passage of
ESSB 5952 and subsequent events provide the Panel with a natural experiment
that disproves the EU’s assertions regarding competitive opportunities for
imported 777X wings and fuselages.
45. Setting aside the fact that
Boeing does not use domestic fuselages and wings to produce the 777X, the EU
has no basis for asserting that ESSB 5952 distorted the competitive
opportunities available to imported fuselages and wings, or that the challenged
measures are "geared to induce" the use of domestic over imported goods. Indeed, the evidence above shows that
Boeing’s determination to site 777X manufacturing operations in the United
States was driven by commercial considerations independent of ESSB 5952, as
were its decisions to source parts from suppliers.
1.1.7 B. The EU Fails
to Establish that the Challenged Measures are "Geared to Induce" the
Use of Domestic Over Imported Goods.
46. Compared to the evidence
discussed above, which disproves the EU’s claims, the EU’s de facto arguments
are noticeably thin on actual facts. The
EU contends that the Panel should use a "geared to induce" analysis
in assessing its de facto claims under Article
3.1(b), based on the Appellate Body’s use of the "geared to induce" analysis
to evaluate prohibited export subsidies in EC – Large Civil Aircraft. Yet, the EU never discusses – let alone
applies – the specific elements of the "geared to induce" analysis
that the Appellate Body identified. It
has also declined to engage with much of the relevant factual evidence. In fact, a proper "geared-to-induce"
analysis would confirm that the alleged subsidies did not induce Boeing to
engage in import substitution.
1.1.8 C. None of the
Factual Evidence Cited By the EU Supports Its De Facto Arguments.
47. In its first set of written
questions, the Panel asked the EU to identify the factual evidence supporting
its Article 3.1(b) claims. In response,
the EU lists five "facts." With one exception, the EU declines to
explain why they might be relevant, or to link them to the "geared to
induce" analysis it would have the Panel apply to its de facto claims. Most importantly, none supports the EU’s de facto arguments.
48. "The
text of SSB 5952." The EU’s reference to the First and
Second Siting Provisions does nothing to remedy the core flaw in both its de jure and de facto claims: neither provision requires a specific
production process, let alone one that necessarily involves the use of
fuselages and wings in the production of a commercial airplane. It may be the case that Airbus manufactures a
"completed, joined fuselage" of the A320 as an "intermediate
good{}"before final assembly, but it does not follow that Boeing does the
same with the 777X, or that ESSB 5952 requires it to do so to be eligible for
the challenged tax treatment.
49. Statement
of Washington’s Governor. The
EU cites a statement by Governor Inslee "indicating that the ‘legislation
includes strong contingency language.’"
A political statement is not direct evidence of what a measure actually
requires, and the statement itself begs the question of what
is conditioned by the "contingency language;" it says nothing about
the challenged tax treatment being contingent on the use of domestic over
imported goods.
50. Boeing’s
importation of "wings for its 787 from Japan." Boeing
does not import complete 787 wings from Japan.
Rather, Boeing imports multiple wing-related structures from Japan and
must therefore conduct further wing assembly activity in the United States. Even if Boeing could or did import complete
787 wings from Japan, it would not follow that ESSB 5952 requires Boeing to
"use" domestic wings on the 777X program.
51. Boeing’s
supposed"active{} consider{ation}"of importing 777X wings from
Japan. The EU asserts
that "Boeing actively considered the possibility of importing the 777X
wings from Japan prior to the enactment of SSB 5952, and formally decided
against that option once SSB 5952 was enacted." This is incorrect in
several respects, reflecting the EU’s refusal to engage with the evidence. The facts directly contradict the EU’s
assertion that Boeing "formally decided against "importing 777X wings"
once SSB 5952 was enacted."
52. "Rewards"
and "penalties." As discussed above, the EU’s sole
argument in relation to its proposed" geared to induce" analysis is
that ESSB 5952 penalizes" use of imported wings or fuselages" and
rewards" use of domestic wings or fuselages." This" rewards"/"penalties"
formulation merely imports from the EU’s de jure arguments
the baseless assumption that the First and Second Siting Conditions require the
use of domestic fuselages and wings.
53. For all of these and other
reasons, therefore, the First and Second Siting Provisions would be very poor
instruments for requiring import substitution.
As the factual evidence shows, they allow Boeing to use exclusively
imported parts to meet the First Siting Provision, and to avoid triggering the
Second Siting Provision. They impose no
contingency whatsoever on receipt of the challenged treatment by other aerospace
manufacturing activities in Washington, whether conducted by Boeing or any
other manufacturer. The total
configuration of the facts also reveals that there were no potential import
opportunities for ESSB 5952 to operate against.
V. The EU Fails to Establish that the Challenged Measures Confer a
Financial Contribution or a Benefit
54. As the United States
previously explained, where a Member challenges the alleged grant of a subsidy
to a particular recipient of an alleged subsidy, that Member normally must
establish actual receipt of that subsidy.
That may not be the case where a Member asserts" that a financial
contribution exists in the abstract," which the EU has now clarified is
its argument in this proceeding.
However, a challenge" in the abstract" does not excuse the
complaining Member of its burden to establish all elements of the existence of
a subsidy as of the time of the proceeding.
55. Article 1.1(a)(1)(ii) defines
a financial contribution to include" where . . . government revenue that
is otherwise due is foregone or not collected (e.g. fiscal incentives such as
tax credits)." By virtue of the present tense verb" is, "this
provision covers revenue foregone or not collected in the
present. Thus, Article
1.1(a)(1)(ii) deals with tax liabilities that exist in the present, and government
actions with respect to those liabilities.
56. The EU advances several legal
arguments to evade the implication of the present tense drafting of Article
1.1(a)(1)(ii). None are valid. There is no reason to consider, as the EU
does, that "maintain" in Article 3.2 of the SCM Agreement applies to
the present and "grant" to the future. Moreover, the application of Article
1.1(a)(1)(ii) depends not on theoretical entitlements, but on an essentially
counterfactual comparison. Finally, the
EU contends that applying Article 1.1(a)(1)(ii) exclusively to existing
tax liabilities would leave Members with impunity to impose prohibited
contingencies in the present in exchange for tax breaks in the distant
future. Its concern is misplaced. The farther in the future a tax advantage
exists, the less certainty the taxpayer will have that it will continue to be
advantageous, and the less likely it is to influence current conduct.
57. In this dispute, the EU
argues that a finding of benefit proceeds automatically from a finding that
revenue is foregone. But that is not the
case. Revenue is "foregone" for
purposes of Article 1.1(a)(1)(ii) when the authorities provide tax
treatment more advantageous to the taxpayer than under the "normative
benchmark" of the Member’s tax system.
In contrast, a benefit exists when a financial contribution provides the
recipient more advantageous terms than the market would provide. The EU’s approach treats these measurements
as identical when they are, in fact, different.
The EU bears the burden of showing in each instance that the treatment
under ESSB 5952 is better than available on the market, and has not done so.
2 Executive Summary of
U.S. Opening Oral Statement at the second Substantive Meeting of the Panel with
the Parties
58. During the first meeting, the
United States described how the EU is trying to fit a square peg into a round
hole. This is just as true today as it
was then. Even if the challenged
measures were found to be subsidies, they would be production subsidies, which
even the EU acknowledges are not, in and of themselves, prohibited. They are simply not contingent on the use of
domestic over imported goods. The EU
attempts to stretch the scope of Article 3.1(b) of the SCM Agreement, and reads
meaning into ESSB 5952 that simply is not there.
59. First, the EU’s interpretation of
the terms in Article 3.1(b) of the SCM Agreement would effectively turn
production subsidies into prohibited import substitution subsidies. This result demonstrates that its interpretation
of Article 3.1(b) is erroneous.
60. Most modern production
processes include multiple production steps, and Members granting production
subsidies, as they are permitted to do, will want to ensure that recipients
actually engage in the production the authorities seek to promote. They will also want to be certain that the
production activity is substantive, and not a trivial operation that adds
nothing to the economy. Whether
clarified explicitly in the legislation or left implied, Members typically
would not be interested in subsidizing a producer that completes only a single,
perhaps minimal, production step. But
the EU’s interpretation of Article 3.1(b) would preclude a Member from
requiring any production activity more substantial than the final production
step.
61. A review of the EU’s
interpretation of the terms in Article 3.1(b) will expose this mismatch between
the EU’s nominal recognition that the SCM Agreement does not prohibit
production subsidies as such, and the effect of its legal arguments. The EU has argued that "goods," as
used in Article 3.1(b) and modified by "imported," should not be
limited to tradable items or otherwise cabined.
It has also argued for an expansive understanding of the word "use"
and has stated that it is irrelevant if the manufacturer of the finished good
also produced the intermediate good allegedly used. Taken together, these positions suggest every
object, article, or structure that exists throughout any manufacturing process
is a "good" that is" used" within the meaning of Article
3.1(b) when the manufacturer takes the next production step – regardless of
whether the result of that next step is an article that is unfinished,
intermediate, or untradeable.
62. Furthermore, the EU has abstained
from any detailed analysis of what would make a good "domestic" for
purposes of Article 3.1(b). Rather, it
appears that the EU assumes that a "good" is "domestic," at
least for purposes of Article 3.1(b), if an article was modified in any way in
the grantor’s territory, irrespective of whether it was produced from foreign
parts or how much value is attributable to the production or assembly
step. Therefore, in any production
process that involves more than one step, the first step will result in a
"domestic good," and the second step necessarily will involve the use
of that domestic good. Accordingly,
under the EU’s theory, a requirement that more than one production step be
performed in the grantor’s territory would make a subsidy contingent on the use
of a domestic over an imported good.
63. Second, the EU is wrong in
asserting that "it is a fact that aircraft ‘use’ wings and fuselages: without those inputs, the aircraft could not
be produced." If the EU is suggesting that fuselages and wings are "used"
as "goods" within the meaning of Article 3.1(b) merely because
airplanes have fuselages and wings, the EU is mistaken. A manufacturer does not "use" every
element of a finished good that one can point to and describe with a name. "Use"
in the context of a manufacturing process refers to what goes into the process,
and not the features of the product at the end of the process. Those are elements of the output, and not
"goods" that are "used" themselves, but elements of a
distinct finished good. To take an example,
one can quite easily point to a finished building’s façade, but the builder
does not "use" the façade as a good within the meaning of Article
3.1(b). Likewise, just because one can
point to a finished airplane’s fuselage and wings does not mean that the
manufacturer "used" the fuselage and wings as goods within the
meaning of Article 3.1(b).
64. If the EU is suggesting that,
as a factual matter, airplanes cannot be produced without first producing
fuselages and wings as separate goods and then using them as inputs, this is
inaccurate. The fuselage and wings of an
airplane effectively make up the airframe and, as such, are functionally
important elements of an airplane, but there is no definitional or physical reason
why they would have to be produced as separate goods that are used as
inputs. It is certainly feasible for an
airplane to be assembled without first assembling a completed fuselage and
wings as separate goods. Rather,
fuselages and wings can be – and in the case of the 777X will be – completed
only during and as part of the final assembly of the finished airplane. Therefore, the EU is wrong when it suggests
that "it is a fact that aircraft use wings and fuselages "within the
meaning of Article 3.1(b).
65. If the EU means that airplanes
"use" fuselages and wings as "goods" by virtue of the fact
that airplanes have fuselages and wings, this is a misinterpretation of the
term "use." If, on the other hand, the EU means that, as a factual
matter, a manufacturer must first produce fuselages and wings as separate goods
and then use them as inputs to produce the finished airplanes, this is
incorrect. As the 777X program
demonstrates, a manufacturer need not assemble completed fuselages and wings
prior to assembling the finished airplane.
66. Third, the EU misinterprets ESSB
5952. The two Siting Conditions
themselves do not require any production process in particular, nor do they
address the domestic or imported character of inputs. The definition of "significant
commercial airplane manufacturing program"– like any definition – simply
provides greater clarity and concreteness.
It does not, as the EU suggests, communicate a separate substantive
requirement to use domestic over imported inputs. Furthermore, the intent of ESSB 5952 is clear
– to ensure the siting of a manufacturing program that is important to the
state’s workforce. The EU’s efforts to
characterize it as having the "cardinal purpose" of import
substitution is implausible, particularly given the significant use of imports
in the 777X, and the ability of taxpayers other than Boeing to receive the tax
treatment at issue without meeting any conditions, meaning they could not
possibly be required to use domestic over imported goods.
67. The EU also asserts that its
interpretation is necessary to give meaning to the words "fuselages" and
"wings" as they appear in the definition of "significant
commercial manufacturing program." It contends that the U.S. description
of the operation of ESSB 5952, by contrast, would render those words meaningless
and superfluous. This is nonsense. The words in question (i.e.,
"fuselages" and "wings") appear within the definition of a
defined term (i.e., "significant
commercial airplane manufacturing program"). They do what the words of any definition do –
add clarity and concreteness to a term used elsewhere in the measure. In this case, the terms "siting" and
"significant commercial airplane manufacturing program "form the
condition that must be met for the legislation to take effect. And, it is logical that it clarified the
meaning and ensured the desired level of significance for this commercial
airplane manufacturing program in terms of the principal elements of the
structural airframe, the fuselage and wings.
68. The EU also seeks to support
its interpretation of ESSB 5952 by asserting that the "cardinal purpose"
of ESSB 5952 was "making the importation of wings and fuselages of the
777X prohibitively expensive so as to ensure the use of domestic wings and
fuselages over imported wings and fuselages." The EU’s story is that
Washington used ESSB 5952 to induce Boeing to use domestic, made-in-Washington
goods in the production of the 777X.
However, Washington decided not to require such use or otherwise define
minimum local content (which, by the way, is the actual classic example of a
local content contingency). Furthermore,
under the EU’s theory, Washington chose to effect the local content requirement
not through the conditions themselves, but rather in the definitions
section. According to the EU, Washington
chose to focus on elements of an airplane, but ignore Boeing’s sourcing of all
of the various parts it purchases, a significant portion of which are actually
to be imported and a significant portion of which are brought in from other
U.S. states. And Washington also chose
to ignore whether the goods used by all taxpayers other than Boeing were
domestic or imported, while nonetheless providing the identical tax treatment
made available to Boeing.
69. The EU’s view is
implausible. The text of ESSB 5952, as
well as the surrounding facts, make it very clear that the point of ESSB 5952
was to ensure that a significant manufacturing program was sited in the state,
in order to maintain and grow Washington’s aerospace industry workforce. And it did just that; it did not have as its
"cardinal purpose," nor did it actually require, the use of domestic
over imported goods.
70. Fourth, the EU is incorrect
that the factual circumstances of the 777X program are irrelevant. The 777X manufacturing program is the only
one considered by DOR and determined to fulfill the First Siting
Provision. It also has, since that
determination, not been determined to trigger the Second Siting Provision. Therefore, it certainly is the most reliable
evidence of the proper interpretation of ESSB 5952. And the 777X program will not include the
production of completed fuselages and wings as separate goods that will then be
used to produce the finished airplane.
Because fuselages or wings – whether domestic or imported goods – are
not produced as separate "goods" and then "used" as inputs
in producing the finished 777X, and the program nevertheless was determined to
satisfy the First Siting Provision and has not been found to trigger the Second
Siting Provision, those Siting Provisions necessarily do not require the "use"
of fuselages and wings as "goods" within the meaning of Article
3.1(b), much less require the use of domestic over imported fuselages
and wings. Where, as here, factual
evidence refutes the complaining Member’s de jure arguments,
the proper course is not to ignore the factual evidence, but to reject the de jure claim.
71. Fifth, the EU’s entitlement theory of financial contribution highlights the
insufficiency of the EU’s cursory benefit argument. It is possible that an abstract entitlement
exists, but no one uses it. As the EU
itself states: "it is not necessary for any . . . actual foregoing to take
place in order to qualify as a financial contribution." But if this were
the case, there would be no benefit.
72. In addition, the EU’s current
financial contribution argument undermines its contingency arguments. In the context of Article 3.1(b) of the SCM
Agreement, a relation of contingency exists only where the "use of
domestic over imported goods" is required to receive the alleged
subsidy. However, in this case, the tax
treatment provided for by the alleged subsidies would still have been available
until July 1, 2024, even if the supposed contingencies had never been met. This is because July 1, 2024, was the
expiration date for the relevant tax treatment prior to the adoption of ESSB
5952. Accordingly, even on the EU’s own
theory, the alleged subsidies are not "dependent for their existence"
on the use of domestic over imported goods.
_______________
ANNEX C
Arguments
of the Third Parties
|
Contents
|
Page
|
|
Annex C-1
|
Integrated
executive summary of the arguments of Australia
|
C-2
|
|
Annex C-2
|
Integrated
executive summary of the arguments of Brazil
|
C-4
|
|
Annex C-3
|
Integrated
executive summary of the arguments of Canada
|
C-8
|
|
Annex
C-4
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Integrated
executive summary of the arguments of China
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C-11
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Annex
C-5
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Integrated
executive summary of the arguments of Japan
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C-13
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ANNEX C-1
INTEGRATED
EXECUTIVE SUMMARY OF THE ARGUMENTS OF AUSTRALIA
1. Australia
has taken the opportunity to participate as a third party in this dispute as
there are significant systemic issues about the interpretation of obligations
under the Agreement on Subsidies and Countervailing Measures (SCM Agreement)
and the General Agreement on Tariffs and Trade 1994 (GATT 1994).
I. What
is a prohibited subsidy under Article 3.1(b) of the SCM Agreement?
2. Australia
recalls that Article 3.1(b) of the SCM Agreement prohibits "subsidies
contingent, whether solely or as one of several other conditions, upon the use
of domestic over imported goods."
In Canada – Autos the Appellate Body found
that Article 3.1(b) of the SCM Agreement extends to contingency in fact,
because to not do so "would make circumvention of obligations by Members
too easy."[12]
3. The
EU notes in paragraph 76 of its submission that the two provisions are "expressly
conditioned on the use of domestic over imported goods." However, the EU does not clearly illustrate
how it reaches that conclusion. It is
also unclear whether the EU is suggesting that subsidies alleged to breach the
SCM Agreement are contingent on the use of domestic goods in a de jure or de facto manner.
4. To
make a claim that the legislation makes a subsidy contingent, de jure, on the use of domestic goods, the EU must point to
the infringement set out in "the words actually used in the measure."[13] This standard was set by the Appellate Body
in Canada-Autos. To make a claim that the legislation makes a
subsidy contingent, de facto, on
the use of domestic goods requires greater consideration of the facts. The EC – Large Civil Aircraft
Appellate Body report provides guidance in the context of Article 3.1(a). It states that:
[t]he existence
of de facto export contingency, as set out above, "must
be inferred from the total configuration of the facts constituting
and surrounding the granting of the subsidy".[14]
5. Australia
submits that the Panel can be guided by this approach in relation to
Article 3.1(b). Accordingly, the
Panel's determination in this case will depend on the finding of facts.
II. The
Relationship between Article III:8(b) of GATT 1994 and Article 3.1(b) of the
SCM Agreement
6. Australia
notes that there is a legitimate scope within the WTO system for subsidies to
domestic industries. This is recognised in Article III:8(b) of GATT 1994, which
provides:
The provisions of this
Article shall not prevent the payment of subsidies exclusively to domestic
producers, including payments to domestic producers derived from the proceeds
of internal taxes or charges applied consistently with the provisions of this
Article and subsidies effected through governmental purchases of domestic
products.
7. This
was interpreted by the panel in Indonesia – Autos
to "confirm that subsidies to producers do not violate Article III, so
long as they do not have any component that introduces discrimination between
imported and domestic products."[15]
8. Australia
contends that the Panel should maintain and clarify the important distinction
between the permitted payment of a subsidy exclusively to domestic producers
and a subsidy which is contingent on the use of domestic over imported goods.
9. The
Panel needs to assess whether the right to provide subsidies to domestic
producers includes the right to require that the manufacturing activity occurs within the territory of the subsidising
authority; and whether such a requirement could be characterised as one
requiring the use of domestic over imported goods.
III. The
scope for Members to provide subsidies to beneficiaries within their territory
10. Australia
contends that the Panel should consider whether references to a "significant
commercial airplane manufacturing program" and "fuselages and wings"
in the legislation being examined in this dispute can be regarded as merely
defining the scope of the beneficiary or beneficiaries of a subsidy rather than
a requirement to use domestically produced goods.
IV. The
scope for Members to provide subsidies based on geographical location
11. The
legislation in question providing tax incentives to the aerospace industry
(SSB5952) conditions the concessional tax arrangements on certain activities
taking place in Washington State.
12. Should
the tax incentives provided by Washington State be found to be a subsidy, and
the references to wings and fuselages be found to merely define the
beneficiaries of the subsidy, the Panel may find that the tax measures in
question are permitted subsidies under Article III:8(b) of GATT. The intersection between the GATT and Article
3.1(b) of the SCM Agreement could be further explored by the Panel in this
instance.
13. Australia
considers that careful consideration should be given to whether the scope of a
subsidy for manufacture and assembly based on geographical location amounts to
the requirement to use domestic products over imported goods.
14. Careful
consideration should also be given to whether the requirement to site the
activity within the jurisdiction of the granting authority amounts to a local
content requirement. The Panel needs to
clarify whether the beneficiary of the tax incentive would receive benefits for
manufacture and assembly regardless of the source of the inputs to manufacture
and assembly.
15. Relevant
context to consider the ability to limit or target subsidies to specific regions
or within designated geographical regions within the jurisdiction of a granting
authority is provided within the SCM. In
particular, Article 8.2(b) and 2.2 of the SCM Agreement demonstrate that
provision of subsidies on a regional basis is permitted.
16. The Panel therefore
also needs to assess whether the distinction made in the Washington legislation
is between domestic and international goods, as claimed by the EU, or whether
it is the geographical scope of a tax incentive to a business activity conducted
within the geographic region of the jurisdictional authority
ANNEX C-2
INTEGRATED
EXECUTIVE SUMMARY OF THE ARGUMENTS OF BRAZIL
I. PROPER SCOPE OF THE
CONTINGENCY UNDER ARTICLE 3.1(b) OF THE SCM AGREEMENT
1. Brazil would like to highlight that only two types of subsidies
are prohibited under Part II of the SCM Agreement. As stated by the Appellate Body in EC – Large Civil Aircraft[16] :
Only
those subsidies that are conditioned on export performance or on import
substitution are prohibited per se under Article 3 of Part II of the SCM
Agreement. In contrast, all other subsidies are allowed under the SCM
Agreement, albeit a Member granting such subsidies should not cause, through
the use of the subsidies, adverse effects within the meaning of Article 5 of
Part III, in which case it must remove the adverse effects or must withdraw the
subsidies themselves.
2. In the case of Article 3.1(b) of the SCM
Agreement, the import substitution subsidy has a particular
contingency: "the use of domestic over imported goods". The
contingency therefore hinges primarily on two elements: "goods" and their "use".
3. First, Brazil would like to emphasize that Article 3.1(b) of the
SCM Agreement textually requires the use
of "goods" to establish its contingency. It does not cover production
requirements. A Member therefore is only prohibited from requiring the use of
domestic "goods" as a condition for the granting of a subsidy. In other words, it is permissible to impose a
condition upon the granting of a subsidy, as long as this condition is not tied
to domestic goods. This is essentially
what Brazil understands to have been the position expressed by the Appellate
Body in Canada – Autos. A domestic "value-added"
requirement is not prohibited unless it effectively or necessarily requires the
use of domestic "goods".
4. The contingency under Article 3.1(b) therefore must be for
domestic products to the detriment of imported products. Mutatis mutandis, the Appellate Body in EC – Large Civil Aircraft
stated with regard to export contingent subsidies:
Among
the latter category of subsidies—that is, the actionable subsidies—are those
granted to an export-oriented recipient, without being contingent upon export
performance. The mere fact that such subsidies may increase the company's
production sold in the export market does not bring them under the discipline
of Part II of the SCM Agreement.[17]
In the same sense, Article
3.1(b) does not cover requirements other than requirements to use domestic
products even if they ultimately lead to a gain in productivity of the domestic
industry.
5. Second, the condition must concern the "use" of
domestic goods over imported goods. The
use of this term ("use") confirms that the "goods" in
question must be "products" that are capable of being "used"
in a commercial context.
6. Article 3.1(b) of the SCM Agreement
does not prohibit subsidies affecting domestic and imported products generally,
but only those which cause the use of domestic
over imported goods. The contingency
under Article 3.1(b) of the SCM Agreement must
be established upon the actual use of the
domestic product to the detriment of the imported product, not in relation to
"any domestic transaction" it may entail. Given this exclusion applicable to the
payment of domestic production subsidies, it would be incongruous to interpret
Article 3.1(b) of the SCM Agreement
to prohibit a measure simply based on the measure's link to domestic
production. Article 3.1(b) requires
more concrete evidence of a de jure or de facto contingency on the use of domestic over imported
goods.
7. Subsidies programs are generally linked to a
localization/domestic establishment requirement. This linkage may cause an incidental impact
on local production and may benefit domestic producers of input products. Their products may become more attractive to
the producer that established itself in the area as transportation costs go
down and for other reasons. Thus, rather
than importing products, the newly established domestic producer may start to
use a larger share of domestic products as inputs. Clearly, such an indirect effect of the
subsidy does not turn it into a prohibited subsidy.
8. In that respect, one must be careful not to make the same
"false positive"- mistake that footnote 4 of the SCM
Agreement warns against with respect to export contingency: it is
not because a subsidy is granted to companies which export, that there is an
"export contingency." The same
applies to domestic producers. The fact
that subsidies are granted to domestic producers does not, for that reason
alone, mean that there is import substitution conditionality. In Brazil's view,
the focus of the enquiry under Article 3.1 (b) should be on the conditionality
of the subsidy and the extent to which it requires the "use" of
domestic over imported "goods".
9. In conclusion, Brazil considers that in order to sustain a claim
of violation of Article 3.1(b) of the SCM Agreement, a complainant must show that the subsidy in question has a
specific contingency: that of the use of domestic
goods over imported goods. Any subsidy that does not impose such a
contingency is not prohibited under Article 3.1(b) and could only be challenged
as an actionable subsidy under the SCM Agreement.
10. Blurring the line between prohibited and actionable subsidies
would undermine the overall balance between Members' obligations under the WTO
and their policy space, and it would unduly curtail the fomenting of industrial
development. At the same time, the
disciplines of the SCM Agreement
must be respected in order to ensure a level playing field among Members and to
minimize trade distortions. This
requires a careful examination of the specific nature and implications of the
conditions attached to a subsidy.
II. brazil's responses to
QUESTIONS FOR third parties
Reply by
Brazil to question 1
It is not entirely clear to Brazil what the
Panel means by "actual use or exercise of the fiscal incentive". If
the Panel is asking whether the mere foreshadowing of a fiscal incentive is enough, the answer is clearly no.
Reply by
Brazil to question 3
In sum, Article 1 defines a subsidy for
purposes of the SCM Agreement. Article 2 defines "specificity" and
also frequently refers to the "granting authority" and the
"granting of disproportionately large amounts of subsidy", thus
employing the same term "granting" as found in Article 3. Article 3
imposes a specific discipline for certain types of subsidies, prohibiting these
categories. Article 3.2 imposes a specific requirement not to grant "or
maintain" such prohibited subsidies and is thus part of the context in
which the definition of a subsidy as set forth in Article 1 is to be read. In
that respect, this provision is contextually "relevant", just like
any other provision of the SCM Agreement.
Reply by
Brazil to question 4
In light of the Vienna Convention's
disciplines that the starting point for ascertaining "object and
purpose" is the treaty itself, in its entirety, rather than a particular
provision[18], Brazil understands
that the object and purpose of Article 3.1(b) of the SCM Agreement is to
prohibit import substitution subsidies contingent upon the use of goods,
domestic over imported. Therefore, the interpretation of the term
"goods" should not be made so as to blur the line between prohibited
subsidies, which affect goods, and actionable subsidies,
which affect production.
Reply by Brazil to question 5
Brazil
understands that the SCM Agreement does not prohibit WTO Members from providing
subsidies to producers contingent on the performance of production steps of a
certain good in their territories. This production requirement could fall
either upon the production of a final or an intermediate good. A subsidy can
require the performance of production steps relating to the final good whose
production is being subsidized or of the intermediate product which will be
integrated into that specific subsidized production chain. A Member could just
as well legitimately create, under Article 3.1(b) of the SCM Agreement, two
separate subsidy programmes requiring the performance of production steps in
its territory, one related to the final product and one related to the
intermediate product which will be integrated into that specific subsidized
production chain. In this sense, Brazil understands that the scenario submitted
by Canada would not be a de jure
contingency claim under Article 3.1(b) of the SCM Agreement.
Additionally, whether the conditionality in
question amounts to a prohibited condition to "use domestic over imported
goods" must be analysed based on the text of the specific subsidy program,
in the light of its necessary implications and in the context of the total
configuration of the facts of each situation.
Reply by
Brazil to question 6
It is not entirely clear to what
"guidance from previous cases" the Panel is referring because the
Panel does not refer to any specific cases. In any case, Brazil considers that
a de facto claim requires a panel to go
beyond the text of the specific subsidies program and its necessary
implications to examine the program in the context of the totality of the facts
surrounding the granting of the subsidy.
The Panel should take into due consideration
previous jurisprudence regarding de facto claims
under Article 3.1(a) of the SCM Agreement for the analysis of a de facto claim under Article 3.1(b). In EC – Large
Civil Aircraft, the Appellate Body ruled that the standard of de facto export contingency under Article 3.1(a) and
footnote 4 of the SCM Agreement "would be met when the subsidy is granted
so as to provide an incentive to the recipient to export in a way that is not
simply reflective of the conditions of supply and demand in the domestic and
export markets undistorted by the granting of the subsidy"[19]. Mutatis mutandis, the
fact that the granting of a subsidy might increase overall domestic production
or decrease imports would not in and of itself be de facto contingent on the
use of domestic over imported goods. It would have to provide an incentive that
is not simply reflective of the conditions of supply and demand for domestic
and imported goods.
In the analysis of a de facto
contingency claim under Article 3.1(b), a Panel may also use some of the same
tests or factors as in Article 3.1(a), such as a "but for" test or an
expected sales ratio from a profit maximizing firm.
Reply by
Brazil to question 7
The key legal matter in this connection is
the proper understanding of the term "domestic" in Article 3.1(b) of
the SCM Agreement, which is not defined in the Covered Agreements. To Brazil,
the discipline contained in Article 3.1(b) requires a definition of
"domestic" that makes economic sense. While it may be impossible to
determine in the abstract the exact percentage of value added in the country
concerned that is required to characterize a product as "domestic" in
all cases, there certainly are cases that can be safely excluded – or included
– in this definition. In any case, in Brazil's view, this is a factual question
that is to be determined by looking at the specific nature of the specific product and
its production process, in the light of applicable
domestic legal requirements.
Reply by
Brazil to question 8
Brazil refers the Panel to its
answer to question 6.
Reply by
Brazil to question 11
What was emphasized in Brazil's submission
was that the term "use" has already been interpreted by the Panel in
US – Upland Cotton, which opposed the understanding that "any domestic
transaction" would fall within the meaning of use. Furthermore, Brazil
emphasizes the use of products so as to clearly delimit the prohibited
subsidies from actionable production subsidies.
Brazil does not take a position on the
specific facts of the case, but reiterates that the discussion of whether a
subsidy is prohibited or not in light of Article 3.1(b) requires the analysis
of whether the conditionality established within the subsidy programme is
related to the performance of production steps or to the use of products. If
the condition, for instance, simply requires a domestic production activity of
the producer, it will likely not amount to a prohibited
conditionality.
Reply by
Brazil to question 12
Brazil will not delve into the specific facts
as raised by the parties and will therefore not express a position on the
ultimate merits of the parties' allegations that follows from applying the law
to the facts of this case. The Panel's question whether "the use of a
domestically assembled or manufactured wing always constitute[s] the use of
domestic goods" is thus to be answered based precisely on the facts of
this case rather than on the basis of categorical conclusions of what
"always" or "never" will constitute use of domestic goods.
Brazil understands that a subsidy on the production of a certain good,
with requirements on the performance of production steps along the production
chain, would not be considered de jure
contingent on the use of domestic over imported goods under the purview of
Article 3.1(b). Therefore, an automatic contingency would not be present
when a programme requires the assembly of a good in the territory of a Member.
For a de facto contingency claim, an
evaluation of the programme in practice would be needed.
Reply by
Brazil to question 14
As mentioned before, Brazil understands that there is a fundamental
difference between a requirement of the performance of production steps and a
requirement of the use of domestic products for a de jure
contingency under Article 3.1(b). A de facto
contingency would require an analysis of the total configuration of the facts
at hand. As a third party, Brazil only has
limited access to the parties' factual and legal arguments and thus prefers not
to express a definitive view on how the law applies to the facts of this
particular dispute
ANNEX
C-3
INTEGRATED EXECUTIVE SUMMARY OF THE ARGUMENTS OF canada
1. The
findings of the Panel in this dispute will have important consequences for the
way in which the Agreement on Subsidies and Countervailing Measures (SCM
Agreement) is interpreted and applied in future disputes. Canada therefore welcomes the opportunity to
present its views to the Panel. Canada's
submission addresses the issue of prohibited import-substitution subsidies
under Article 3.1(b) of the SCM Agreement.
2. The
European Union claims that the continuation and extension of subsidies[20] by Washington State in the
form of tax benefits to Boeing under SSB 5952 are contingent upon the use of
domestic over imported goods in violation of Article 3.1(b) of the SCM
Agreement. The European Union thus
alleges that a "programme-siting condition" and an "exclusive-production
condition" require Boeing "to use wings and fuselages produced or
assembled in Washington State in the final assembly of 777X LCA in Washington
State".[21]
3. Canada
considers that the European Union's suggested interpretation of
Article 3.1(b) would improperly extend the provision to cover situations
where subsidy recipients are required to produce
goods. The European Union appears to be
arguing that a subsidy is contingent on the use of domestic over imported goods
where the producer of a final good is required to produce certain components of
that good in order to receive the subsidy.[22]
4. Canada
understands that under what the European Union describes as the
"programme-siting condition" Boeing is required to locate the 777X
development program and manufacture and/or assemble the 777X, including
fuselage and wings, in Washington State.[23] A so-called "exclusive-production
condition" confirms that Boeing must carry out the final assembly or wing
assembly of (any) of its aircraft models in Washington State, and not
elsewhere, in order to benefit from reduced taxes.[24]
5. Although
Boeing may, in fact, "use" fuselages and wings produced in Washington
State to receive the tax subsidies, the company would be required
to manufacture and/or assemble those fuselages and wings itself. There is no requirement included in SSB 5952
to purchase wings, fuselages, parts used in the assembly thereof or other parts
used in the assembly of the final aircraft produced in the United States. The European Union also did not provide any
evidence suggesting that Boeing would de facto have
to "use" domestic components other than those that the company
manufactures itself.
6. Canada
considers that a WTO Member is not prohibited from providing subsidies to its
domestic producers, including where the subsidy to the producer of a final good
is contingent either on the production or the assembly of an intermediate good
by that same producer. In both
instances, the subsidy is a production subsidy that is not contingent on the
use of domestic over imported goods.
7. Nothing
in the General Agreement on Tariffs and Trade 1994 (GATT 1994) or SCM Agreement
prohibits a subsidizing Member from making the granting of a subsidy contingent
on a recipient producing goods in its territory.[25] In fact, GATT Article III:8(b)
explicitly allows WTO Members to provide subsidies to their domestic producers.[26] A producer of a final good that is required
to produce an intermediate good is also a producer of the intermediate
good. Therefore, a subsidy can be made
contingent on the production of an intermediate as well as a final good.
8. Neither
the GATT 1994 nor the SCM Agreement limit a subsidizing Member's ability to
define the level of production required for subsidy eligibility purposes. As part of this discretion, a Member may
explicitly require the production of an intermediate good. A Member's ability to condition the provision
of a subsidy on a production requirement would be significantly curtailed if a
Member could not require the production of an intermediate good. A production requirement would then have to
be limited to simple assembly operations.
9. This
position is supported by the Appellate Body's report in Canada –
Autos. In that dispute, the
Appellate Body assessed whether a measure providing Canadian automobile
manufacturers with an import duty exemption contingent, inter alia,
on satisfaction of a Canadian value-added (CVA) requirement, was inconsistent
with Article 3.1(b) of the SCM Agreement.[27] Under the measure, a manufacturer could meet
the CVA requirement by disclosing the aggregate of certain costs of producing
vehicles in Canada listed in the definition of "Canadian value
added".[28] A number of costs were included in the
definition of CVA. The most relevant for
the Appellate Body's analysis were (1) the cost of domestic
goods, that is, those domestic parts and materials purchased by the manufacturer for use in the production of
its motor vehicles[29], and (2) the cost of
domestic labour[30], that is, the cost of all
labour reasonably attributable to the production of vehicles. The latter would include the cost of labour
used to produce intermediate goods.
10. In
analyzing whether the CVA requirement was inconsistent with
Article 3.1(b), the Appellate Body distinguished between the cost of
labour and the cost of domestic goods.
It found that the CVA requirement would violate Article 3.1(b) only
if it required the manufacturer to use domestic goods.[31] However, it did not consider that a
requirement to use domestic labour, regardless of whether that requirement may
imply the production of intermediate goods, would violate Article 3.1(b).[32]
11. The
European Union's interpretation would nullify the right of a WTO Member to
require a subsidy recipient to produce goods, as defined by the Member, in its
territory, in order to receive a subsidy.
This has no basis in law, and would have considerable, negative
consequences for industry given that most manufacturers produce intermediate
goods as part of the production of their final goods. As such, and for the reasons set out above,
the Panel should reject the interpretation advanced by the European Union.
ANNEX
C-4
INTEGRATED
EXECUTIVE SUMMARY OF THE ARGUMENTS OF cHINA
1. This integrated executive summary summarizes the arguments
and viewpoints presented by China to the Panel in its Third Party Submission,
Oral Statements and responses to the questions following the substantive
meeting. China mainly focuses on the two issues in this dispute in the
executive summary: 1) legal framework of Article 3.1(b) of the SCM Agreement;
and 2) whether the "Programme-Siting Condition"
and "Exclusive-Production Condition" are consistent with Article 3.1(b)
of the SCM
agreement.
The Legal Framework of Article 3.1(b) of the
SCM Agreement
2. At the outset, China indicates that in order to establish a prima facie case under Article 3.1(b), the EU is obligated to
demonstrate: 1) relevant measures constitute subsidies
under Article 1 of SCM Agreement; and 2) relevant measures are contingent upon
the use of domestic over imported goods. China will not touch upon the first condition, but
only focus on the second condition.
3. Firstly, China is of the view
that "contingency" under
Article 3.1(b) of the SCM agreement includes both contingency in
law and contingency in fact. The Appellate Body clarified in Canada‑Autos that "contingency" includes both
contingency in law and contingency in fact and this legal standard applies not
only to "contingency" under Article 3.1(a), but also to "contingency"
under Article 3.1(b)[33]. Hence, China believes, under present dispute, if subsidies
are found contingent upon import substitution, regardless in law or in fact,
they shall be determined to constitute prohibited subsidies. In addition, China also mentions the finding of the Appellate Body made
in EC— Large Civil
Aircraft so as to
establish the test for determining whether a subsidy is de facto contingent on export
performance. Such test might be also applied
in the present dispute.
4. Secondly, China believes the term "contingent" is
a "key word" under Article 3.1(b). The ordinary connotation of
"contingent" is "conditional" or "dependent for its
existence on something else". Therefore, China is of the view that the Panel shall examine if the subsidies granted under "Programme-Siting Condition" and "Exclusive-Production
Condition" are "conditional" or "dependent for its
existence on something else" on the use of domestic over imported goods.
5. Thirdly, China does not agree
with the United States' argument concerning the interpretation of "goods".
If the logic of the United States stands, it will be contradictory
to each other, since the components of fuselages and wings from upstream will
be treated as goods, while the fuselages or wings assembled in
downstream are not goods. With respect to the criterion of "traded"
presented by the United States, China believes the connotation of "tradable"
means the goods has the value of trading instead of being traded in reality.
Therefore, China does not think the interpretation of "goods"
provided by the United States is convincing.
6. Fourthly, China is of the view
that the prohibited subsidy under Article 3.1(b) is
established on the basis of contingency upon "use" of domestic over
imported goods. Contrary to the United States' claim that fuselages
and wings are not "inputs" that are "used"
as goods in the 777X production process[34], China believes that "use" of domestic intermediate goods
in the course of production may also meet the condition on "use" of domestic
over imported goods. If the conditions concerned would result in a de facto situation that the 777X programme prefers the
domestic components or other intermediate goods, the condition of "use"
of domestic over imported goods is also met.
7. Fifthly, China is of the view that Article
III of the GATT on which relied by the United States is not relevant to the
present dispute. China does not
deny that it is possible that Article III.8(b) of the
GATT can be used for context in the interpretation of Article 3.1(b) of the
SCM Agreement. However, China believes that these
two Articles impose different obligations to Members. Article III.8(b) exempts the subsidy provided to domestic producers
from the obligations of Article 3.2 and 3.4 of the GATT 1994.
However, when the subsidy provided to the domestic producers is contingent on use of domestic over
imported goods, it will still constitute prohibited subsidies under Article 3.1(b) of the
SCM Agreement. Therefore, China believes that Article III:8(b) of the GATT
is not the legal basis to exempt the "Programme-Siting Condition" and
"Exclusive-Production Condition" from Article 3.1(b) of the SCM
Agreement.
Whether the "Programme-Siting
Condition" and "Exclusive-Production Condition" are consistent
with Article 3.1(b) of the SCM agreement
8. China
is of the view that the analysis regarding "Programme-Siting Condition"
and "Exclusive-Production Condition" shall take into account the contingency
both in law and in fact perspectives.
9. With regard to the "Programme-Siting Condition", China notes that the
text in SSB 5952 does not expressly or implicitly indicate LCA must
purchase any products including wings or fuselage which are produced in
Washington State to fulfill the "Programme-Siting Condition". There
seems no sufficient evidence in law proving the "Programme-Siting
Condition" would constitute a de jure subsidy
within the scope of Article 3.1(b).
10. However, China believes that taking into account of the cost saving from logistic and tax
incentives aspects, it will be more favourable to purchase the wings and
fuselages components or other intermediate goods produced in Washington State
in the final assembly process of 777X. Therefore, the "Programme-Siting
Condition" might result in a situation domestic components are favoured
than imported components. China suggests the Panel to conduct an examination on this regard.
11. With regard to the "Exclusive-Production Condition",
according to its provisions and statement made by the Governor of Washington
State, the B&O tax rate reduction is specifically
contingent on being sited in Washington State, and it requires that both final
assembly and wing assembly have to be in the Washington State. China believes that if the both
procedures have to be in the same State, it will create more incentive to use
more domestic components due to cost saving and efficiency perspective.
12. China
suggests that the Panel shall examine whether
the "Exclusive-Production Condition" provision in SSB 5952 through
implicit expression shall be considered as a de jure
subsidy within the meaning of Article 3.1(b). And if
it does not constitute de jure
prohibited subsidy, China believes that the Panel shall make an objective
assessment on the fact in relation to the production process of
wings, so as to determine whether the "Exclusive-Production Condition"
provision in SSB 5952 shall be considered as a de facto
subsidy within the meaning of Article 3.1(b), through evaluating (i) the
design and structure; (ii) the modalities of operation; and (iii) the relevant
factual circumstances of B&O tax rate reduction under "Exclusive-Production
Condition".
Conclusion
13. To conclude, China is of the view that the Panel shall take into account of the
contingency in law and in fact to determine whether the tax incentives upon "Programme-Siting
Condition" and "Exclusive-Production Condition" within SSB 5952
constitute subsidies upon use of domestic over imported goods within the
meaning of Article 3.1(b) of SCM Agreement. In addition, China believes that
certain interpretations of the United States, including "use", "goods"
and "relationship between GATT Article III and Article 3.1(b) of SCM
Agreement" shall not be supported by the Pane
ANNEX
C-5
INTEGRATED
EXECUTIVE SUMMARY OF THE ARGUMENTS OF japan
I. Introduction
1. The
Government of Japan presents its systemic views in this dispute brought by the European
Union against the United States with respect to certain aerospace tax
incentives enacted by the State of Washington in 2003, as amended and extended
by Substitute Senate Bill 5952 ("SSB 5952").
II. Contingency Under Article 3.1(b) of the SCM Agreement
A. Legal Standard
2. Regarding the legal standard for "contingency" under Article 3.1(b) of the SCM
Agreement, the Appellate Body in Canada – Autos has clarified that the same legal standard for establishing contingency
under Article 3.1(a) also applies for establishing contingency under Article
3.1(b).[35]
3. In that respect, Japan recalls that the Appellate Body in EC – Large Civil Aircraft noted that the condition of contingency would be met under Article 3.1(a)
of the SCM Agreement when the subsidy is granted so as to provide a certain "incentive to the recipient".[36] Under Article 3.1(b) of the SCM Agreement, Japan is of the view that this
legal standard focused on the incentive requires a comparison between the use
of domestic goods and imported goods, and that this interpretation especially
suits the meaning of the word "over" used
in Article 3.1(b) of the SCM Agreement.[37]
4. Therefore,
in this regard, Japan agrees with the European Union's legal analysis that to establish contingency under Article 3.1(b) of the SCM
Agreement the same framework as suggested by
the Appellate Body in EC – Large
Civil Aircraft for Article 3.1(a) should be used.[38]
B. Evidentiary Standard
1. De Jure Contingency
5. Japan
asks the Panel to carefully examine what exactly the law
itself states and what it necessarily implies since, as clarified
by the Appellate Body in Canada – Autos, the evidentiary standard for a de jure contingency is
that "conditionality can be derived by necessary implication from the words actually used in the measure."[39]
6. When
there is an ambiguity in the law or if the relevant governmental official is
given a degree of discretion, "evidence of consistent application of such
laws, pronouncements of domestic courts on the meanings of such laws, the
opinions of legal experts, and the writings of recognized scholars" should also be
considered. [40]
2. De Facto Contingency
7. The United States points out that the European Union has presented no
evidence or arguments related to the anticipated ratio of the use of domestic
to imported goods for the Boeing Company ("Boeing") with and without the challenged
measure.[41]
8. In
this regard, the Appellate Body admits in EC – Large Civil Aircraft
that the assessment as to whether a subsidy is "geared to induce" export performance
under Article 3.1(a) "could
be based" on a comparison between the ratio of anticipated export and domestic
sales of the subsidized products (namely, the "anticipated ratio"), and the same ratio in the absence of the subsidy (namely, the "baseline ratio").[42] However, it
does not mention that such ratio is always relevant to establish de facto
contingency.[43]
9. Similarly, in examining whether a subsidy provides an incentive to use
domestic over imported products under Article 3.1(b) of the SCM Agreement, Japan is of the view that such comparison
between the baseline and anticipated ratios may not necessarily provide a basis for determining whether
a subsidy provides an
incentive to its recipient.
10. One reason for this is that the
increase of the use of the domestic product may be caused by other factors, such as certain market developments including
diverging shifts in the prices of domestic products as
compared to imported products. However, such other factors causing
the increase of the use of the domestic product must be distinguished from the
effect of the subsidy itself, and the effects that
may be caused by these other factors
must not be attributed to the subsidies.[44]
11. Therefore, Japan asks the Panel to cautiously examine the utility of the "anticipated ratio" test. Whether a particular subsidy provides an
incentive to its recipient must be primarily inferred from "the total
configuration of the facts constituting and surrounding the granting of the
subsidy",[45] rather than by relying on the "anticipated ratio."
12. Japan also recalls that the Appellate Body introduced the
"anticipated ratio" test as one way to determine de facto
export contingency under Article 3.1(a) and footnote 4 of the SCM Agreement,
which reads in relevant part that a subsidy is "in fact tied to … anticipated
exportation."[46] In other words, the "anticipated
ratio" test has a textual basis
in the term "anticipated exportation" in footnote 4. In addition to Japan's comments on the
overall utility of the "anticipated ratio" test, therefore, in any
event, the suggested "anticipated ratio" test developed under Article 3.1(a) should not be simply
imported into the evidentiary standard for the purpose of Article 3.1(b) inquiry,
since Article 3.1(b) contains no reference to "anticipated" use of
domestic over imported goods.
C. Application of the Legal and Evidentiary Standards
13. In light of the legal and evidentiary standards described above, Japan
considers that the EU's analysis in respect of the "programme-siting
condition" and "exclusive-production condition" may fall short
of meeting the standard required to establish the contingency under
Article 3.1(b) of the SCM Agreement.
14. We urge the
Panel to, firstly, very carefully examine what exactly the law itself states and what is necessarily implied by the legislation in
question (as a de jure
claim) as well as its design, structure and modalities
of operation (as a de facto
claim), and then, determine whether the provision of the subsidies provides
incentives for the use of domestic goods over imported goods. If anything, more careful
explanations appear to be necessary to connect facts and legal analysis in paragraphs 42 to 52, and 73 to 79 of the EU FWS.
1. The "Programme-Siting Condition"
15. First, in respect of the "programme-siting condition," it appears
that the requirement to locate Boeing's production of
the wings and fuselage, as well as final assembly in Washington State is not exactly tantamount to a requirement
to use inputs produced or assembled in
Washington State.
16. Further, with respect to the incentive of the
subsidy, there is no explanation in the EU's submission as to how the subsidy is granted so as to provide an incentive to Boeing to use domestic goods in a way that is not
simply reflective of the conditions of supply and demand in a domestic market
consisting of domestic goods and imported goods undistorted by the granting of
the subsidy.
17. Japan
submits that certain subsidies to the producer of a final good contingent on
the production of an intermediate good by the same producer can be inconsistent
with Article 3.1(b) of the SCM Agreement, depending on the factual circumstances of a case.
Had there been an outright
exclusion of subsidies contingent on domestic
manufacturing of intermediate goods from the scope of
Article 3.1(b), it would have allowed WTO Members to easily "circumvent the disciplines" of Part II of the SCM Agreement.[47]
18. Therefore,
in order to determine whether a subsidy granted to the producer of a final good contingent
on the production of an intermediate good by that same producer complies with Article 3.1(b) of the SCM Agreement, a panel should
scrutinize the exact content of the requirements for the subsidy and how they
operate for particular manufacturers receiving the subsidy. If, through such scrutiny, the requirement
for the production of intermediate goods is found to require or incentivize the
use of such domestic intermediate goods in final goods in actual situations,
then the requirement would be in breach of Article 3.1(b).
2. The "Exclusive-Production Condition"
19. Second, in respect of the "exclusive-production condition," the
words actually used in the legislation are not completely clear as to whether,
by virtue of the requirement for the locus of the final
assembly or wing assembly, the revenue from the 777X will
not benefit from the reduced Business and Occupation
("B&O") tax rate if these assembling activities take place outside Washington State.
III. Goods under Article 3.1(b) of the SCM Agreement
A. Imported Goods
20. Japan
submits that, for the purpose of a claim under Article 3.1(b) of the SCM
Agreement, it is not necessary that the concerned goods are actually traded or
are tradable.
21. The
United States argues that because 777X fuselages and wings are
"custom-designed for and unique to the 777X and its production
process" and "[n]o potential purchasers for such articles
exist", 777X fuselages and wings are not saleable or traded, and thus are
not "goods" within the meaning of Article 3.1(b).[48] The United States relies primarily
on the word "imported" that qualifies the word "goods" in
Article 3.1(b). To follow this logic,
certain products would be determined not to be "goods" within the
meaning of Article 3.1(b) merely because an individual company receiving the
subsidy at issue custom-designs the product and commissions a limited number of
contractors to produce it.
22. Although
Japan is not fully cognizant of the precise meaning which the United States
attribute to the terms "tradeable" or "custom-designed"
goods, which are not the treaty words in the SCM Agreement, it should be noted
as a preliminary issue that Japan does not agree with the proposition that
custom-designed goods developed for a particular product model are not capable
of being sold, traded, or imported for that matter. Japan fails to see how the particular
characteristics of "custom-design" preclude the goods from being
"tradeable", e.g. from being
supplied at arm's length from outside sources.
In addition, Japan has two concerns in relation to the limited
interpretation of the term "goods" for the purpose of Article 3.1(b).
23. First
of all, such interpretation would open up an easy path for circumventing
subsidy disciplines under Article 3.1(b) of the SCM Agreement. Indeed, WTO Members would be able to exclude
a subsidy contingent on the use of domestic goods from the coverage of the
SCM Agreement by simply labelling products as custom-designed. Japan recalls that the Appellate Body in US – Softwood Lumber IV cautioned against an interpretation of
the provisions of the SCM Agreement which would permit the circumvention of the
subsidy disciplines and that this consideration was highly pertinent for the
Appellate Body's overall conclusion that non-tradable goods are not excluded
from the scope of "goods" for the purpose of Article 1.1(a)(1)(iii)
of the SCM Agreement.[49]
24. Second,
such interpretation of "goods" under Article 3.1(b) has the risk of
resulting in a wholly arbitrary application of this provision with
unpredictable consequences for the following reasons. A product with the same basic characteristics
may be custom-designed or sold in a standardised form depending on the wishes
of a particular customer. Likewise, a
particular company may, at times, produce and sell virtually the same product
with some custom-designed characteristics, and, at different times, with
standardised characteristics due to a number of factors such as a change in
economic situation or the company's business strategy. However, following the United States'
interpretation, although essentially the same product is produced and sold,
whether it is covered or not covered by the SCM Agreement, would depend on the
wishes of the customer or the company's business strategy at any given point in
time leading to a wholly arbitrary application of Article 3.1(b) of the SCM
Agreement.
25. Limiting the application of Article 3.1(b) to
"tradeable" goods would, thus, hinder the consistent
application of Article 3.1(b) to the detriment of the object and purpose of that
provision.
26. Therefore,
Japan submits that, for the purpose of a claim under Article 3.1(b) of the SCM
Agreement, it is not necessary that the concerned goods are actually traded or
tradable.
B. Domestic Goods
27. Japan
considers that a product assembled entirely from imported components can be a
"domestic […] good" within
the meaning of Article 3.1(b) of the SCM Agreement for the following reason.
28. As
discussed above, the phrase "domestic over imported goods" in Article
3.1(b) suggests that the term "domestic" can refer to anything that
is not imported.
29. Hence,
even if a product is assembled entirely from imported components, when the product itself is not imported,
the product should be regarded as "domestic". Otherwise, the product
could be categorized arbitrarily as either "domestic" goods or
"imported" goods. This would
significantly undermine the object and purpose of – the SCM Agreement by creating room
for circumvention of the obligation under Article 3.1(b) of the Agreement.[50]
IV. Burden
of Proof and the Relevance of Findings Made by Preceding Panels and the
Appellate Body
30. The United States argues that the European Union relies on facts and
legal conclusions established in a separate dispute, US － Large Civil Aircraft, and fails to make a prima facie
case.[51] The United
States points out, inter alia,
that while the panel in that dispute addressed facts that existed in 2006, the
present dispute involves measures that differ from those at issue in that
dispute.[52] The United
States submits that the existence of prior panel findings in US － Large Civil Aircraft does not excuse the European Union from the burden of proof that
normally applies in an original dispute.[53]
31. Japan agrees with the United States that a complainant has to provide
sufficient facts and arguments to allow the Panel to perform its own objective
assessment of the matter, as required under Article 11 of the DSU.[54] Nonetheless, in Japan's view, this does not
mean that a complainant is precluded from relying on
findings contained in previously adopted panel reports if and to the extent such findings are
appropriate for the consideration of the matter before the Panel.
32. Japan observes that the Panel in this dispute should make an objective assessment of the
facts of the case including the issue of whether and to
what extent it may rely on the findings of the
previous panel, taking into consideration any differences in the factual circumstances of the two cases.
33. In this regard, it appears that the aerospace tax incentives (other
than the B&O tax rate reduction)
in this dispute consist of both the tax
incentives that were found by the panel in U S－ Large Civil Aircraft to involve a financial contribution and those
that were not. As a complainant, the
European Union should clearly distinguish the two sets of tax incentives, and
elaborate on the reasons why it considers that the Panel is allowed to rely on the US
－
Large Civil Aircraft panel's and the Appellate Body's
findings in examining the WTO-consistency of each of the challenged measures.
_______________
ANNEX D
procedural
rulings
|
Contents
|
Page
|
|
Annex D-1
|
Letter from the Panel, 15
January 2016
|
D-2
|
|
Annex D-2
|
Letter from the Panel, 4
May 2016
|
D-3
|
ANNEX D-1
Letter from THE PANEL, 15 January 2016
The Panel acknowledges receipt of the United
States' request to extend the deadline for the second written submissions by an
additional week (i.e. that the Panel set a date no earlier than 25 March
2016).
The Panel adopted the present Timetable taking
into account, among other considerations, the unavailability of the United
States' lead attorney to attend a panel meeting during the week of 14 March
2016, as indicated at the organizational meeting. Accordingly, the second
substantive meeting was postponed from 15-16 March, as suggested in the draft
Timetable initially sent to the parties, to 5-6 April.
The Panel is cognisant of the direction under
Article 12.4 of the DSU that sufficient time be given for the preparation of
submissions. At the same time, it is to be recalled that these proceedings are
required, under the SCM Agreement, to be expedited. What might be considered to
be sufficient in expedited and in non-expedited proceedings will necessarily be
different.
The Panel believes that it has fairly
accommodated the parties' concerns as expressed at the organizational meeting
in the adoption of the present Timetable. The concerns which have now more
recently been expressed by the United States do not convince the Panel that
insufficient time has been given for the preparation of submissions by the
parties. In particular the Panel does not agree that the United States will
only have two days to prepare its second submission.
Accordingly, the Panel declines the United
States' request for an extension of the deadline for the second written
submissions.
ANNEX D-2
Letter from THE PANEL, 4 May 2016
The Panel is in receipt of the United States'
communication of 28 April 2016, in which it asked for the opportunity to
comment on certain factual evidence and arguments that were submitted by the
European Union on 25 April with the European Union's comments on the United
States' responses to Panel questions. The Panel has also received the European
Union's comments of 2 May 2016 on the United States' request.
In its request, the United States refers to
eight new exhibits that were provided by the European Union with its comments
on the United States' responses. The United States "disagrees with the
[European Union's] interpretation of this evidence and how [the European Union]
employs the evidence in its argumentation". According to the United
States, an opportunity to comment on this factual evidence and arguments would
help to protect the United States' rights as a responding Member without
delaying this proceeding any more than necessary.
In response, the European Union asks the Panel
to reject the United States' request. In the European Union's view, the United
States has not explained why a new opportunity to comment, which is not
envisioned in the Panel's timetable, would be essential to protecting the
United States' procedural rights. The European Union submits that the due
process rights of the United States must be balanced with the procedural right
of the European Union to a speedy resolution of the dispute, which would be
affected if the United States' request were accepted. The European Union also
states that the circumstances relating to the submission of the exhibits at
issue, as well as the nature of the exhibits themselves, do not merit an
additional set of comments. According to the European Union, the new factual
evidence and related argumentation was offered as a rebuttal to arguments that
the United States made in its responses to Panel questions. Nothing in this new
factual evidence was previously unavailable to the United States and with
respect to two exhibits the United States itself relied on and referred to the
relevant documents before the European Union submitted them as exhibits. The
European Union concludes that not having an additional opportunity to submit
comments would not prejudice the due process right of the United States in this
dispute.
Thus, in summary, the United States requests
the Panel to give it the opportunity to comment on the factual evidence
submitted by the European Union, and the European Union submits to the Panel
that such an opportunity to comment is not envisioned by the Panel's timetable
and is not otherwise merited.
The Panel's Working Procedures do not allow for
any further submissions or comments from the parties at this point in the
proceedings, other than in the case of the parties' comments on the interim
report. Thus, the question for the Panel to decide is whether it should permit
a departure from the Working Procedures. The way in which this might be
justified would be if the Panel formed the view that the due process rights of
a party – here, the United States – would be impacted without such an
opportunity.
There are a number of different considerations
for a Panel to take into account in a situation such as this. An important
consideration is the degree to which the matters that a party seeks to address
were themselves new, were unexpected, or were not advanced by the other party
fairly.
The Panel recalls paragraph 7 of its Working
Procedures:
Each party shall submit all factual evidence to the Panel no later than
during the first substantive meeting, except with respect to evidence necessary
for purposes of rebuttal, answers to questions or comments on answers provided
by the other party. Exceptions to this procedure shall be granted upon a
showing of good cause. Where such exception has been granted, the Panel shall
accord the other party a period of time for comment, as appropriate, on any new
factual evidence submitted after the first substantive meeting.
The Panel notes that the exhibits referred to
by the United States in its request were provided by the European Union as part
of its comments on answers provided by the United States. In its request for an
opportunity to comment on these exhibits and on the associated arguments, the
United States has neither alleged nor provided any indication that the exhibits
submitted by the European Union go beyond evidence that is necessary for
purposes of "comments on answers provided by the other party". The
Panel sees no indication that either the exhibits or the arguments of the
European Union go beyond the "purposes of rebuttal, answers to questions
or comments on answers provided by the other party". Thus, the European
Union was acting within its rights under the Working Procedures in submitting
that evidence.
The Panel has also reviewed the content of each
of the eight exhibits submitted by the European Union with its comments on the
United States' responses. Each of these exhibits and the related argumentation
seems to relate to specific points raised by the United States in its responses
to Panel questions. There is no indication that any of these exhibits
introduces substantially new arguments or factual evidence of a nature that had
not been previously submitted or discussed by the parties. Indeed, the United
States has not argued otherwise, stating only, in support of its request, that
it "disagrees with the [European Union's] interpretation of this evidence
and how [the European Union] employs the evidence in its argumentation".
Accordingly, the Panel finds that the United
States has not established that it should have a further opportunity to comment
on the evidence and arguments submitted by the European Union at this stage of
the proceedings. Such an opportunity is not contemplated in the current Working
Procedures or timetable, and could potentially lead to a prolonged cycle of
exchanges of additional evidence and arguments between the parties. Under the
present circumstances, this would not clearly serve to protect the procedural
rights of either party, and would be particularly undesirable in the current
proceedings, which under the SCM Agreement should be expedited. The due process
rights of the parties are framed by the Working Procedures, and in this case we
do not see a proper or sufficient justification to depart from them.
For the reasons
expressed above, the Panel declines the request of the United States in its
communication of 28 April 2016.
__________
[1] The erroneous failure by a speaker to make such a prior declaration
shall not affect the designation of the BCI in question.
[2] The erroneous failure by a speaker to make such a prior declaration
shall not affect the designation of the HSBI in question.
[3] This category includes (but is not limited to) information on
individual LCA prices, prices per seat, or information allowing the operating
cost per seat of an LCA to be determined, calculated or reflected; the
negotiated or offered prices for the airframe; all concessions offered or
agreed to by an LCA manufacturer including financing, spare parts, maintenance,
pilot training, asset value and other guarantees, buy back options, remarketing
arrangements or other forms of credit support. This category shall also include
the actual pricing information relating to any number of individual LCA offers
and prices (including concessions) aggregated by model or other category.
[4] Concerning service of documents.
[5] At the request of any of the Parties, the WTO Secretariat will try
to obtain as soon as practicable a secure safe to store all HSBI and hard
copies of any HSBI, if a locked security container is deemed unsuitable for the
appropriate protection of the information.
[8] The European Union uses the term "SSB 5952" to refer to
the law that is designated as Chapter 2 of the Laws of the 2013 3rd
Special Session of the Washington State legislature, and published in the 2014
volume of the official digest of the Session Laws of the State of Washington,
beginning at page 2. The United States
refers to the same legislation as "ESSB 5952".
[12] Canada – Autos,
Appellate Body report, para 142.
[13] Canada – Autos,
Appellate Body report, para 123.
[14] EC – Large Civil Aircraft, Appellate Body report, para 1046.
[15] Panel Report, Indonesia — Autos, paras.
14.41–14.45.
[16] Appellate Body Report, EC – Large Civil Aircraft,
para. 1054.
[18] Appellate
Body Report, EC – Chicken Cuts, para. 238.
[19] Appellate
Body Report, EC – Large Civil Aircraft, para.
1.045
[20] The tax incentives challenged by the European Union under Article
3.1(b) are a reduced Business and Occupation ("B&O") tax rate for
the manufacture and sale of commercial airplanes, a B&O tax credit for
pre-production development for commercial airplanes and components, a B&O
tax credit for property taxes on commercial airplane manufacturing facilities,
an exemption from sales and use taxes for certain computer hardware, software,
and peripherals, an exemption from sales and use taxes for certain construction
services and materials, an exemption from leasehold excise taxes on port
district facilities used to manufacture superefficient airplanes and an
exemption from property taxes for the personal property of port district
lessees used to manufacture superefficient airplanes (European Union's first
written submission, para. 15).
[21] European Union's first written submission, para. 44, see also para.
52.
[22] The European Union claims that "pursuant to the
programme-siting condition in Section 2 of SSB 5952, the post-2024
aerospace tax incentives were contingent on the establishment of a new
commercial aircraft manufacturing programme that uses goods (i.e. fuselages and
wings) produced in the United States (specifically, in Washington State). Under this condition, the tax incentives
would not have been extended in duration to 2040 if Boeing had decided to 'use'
imported wings and fuselages in the assembly of the 777X". European Union's first written submission,
para. 74. (footnotes omitted; emphasis added).
The European Union continues: "Likewise, pursuant to the
exclusive-production condition, the reduced B&O tax rate subsidy for the
777X is contingent on Boeing's use of wings produced in the United States
(specifically, in Washington State) exclusively. Under this condition, Boeing benefits from
the reduced B&O tax rate for the 777X only so long as it 'uses' wings
assembled exclusively in Washington State for the 777X, or any variant
thereof". European Union's first
written submission, para. 75.
[23] Substitute Senate Bill 5952, Chapter 2, Laws of 2013 3rd Special
Session, 2014 Wash. Sess. Laws 2 (SSB 5952), Exhibit EU-03, section 2.
[24] Ibid. subsections 5(11)(e)(ii) and 6(11)(e)(ii).
[25] See Annex
IV:3 of the SCM Agreement, which forms part of the rules under paragraph (a) of
the now expired Article 6.1 for determining when a subsidy is deemed to have
caused serious prejudice. Annex IV:3
explicitly refers to subsidies tied to the production of a given product. By contemplating that subsidies may be tied
to production in the context of a serious prejudice analysis rather than in the
context of a prohibition, Annex IV:3 recognizes that WTO Members are not
prohibited from providing subsidies tied to production.
[26] Article
III:8(b) of the GATT 1994 provides: "[t]he provisions of this Article
shall not prevent the payment of subsidies exclusively to domestic producers,
including payments to domestic producers derived from the proceeds of internal
taxes or charges applied consistently with the provisions of this Article and
subsidies effected through governmental purchases of domestic products";
See also Panel Report, EC – Commercial Vessels,
paras. 7.69 and 7.75 where the panel found that contributions provided only to
domestic producers of certain vessels were covered by GATT Article III:8(b) and
therefore not inconsistent with GATT Article III.
[27] Appellate Body Report, Canada –
Autos, para. 125.
[28] Ibid.
paras. 124 and 125.
[29] Ibid. As
the cost of producing intermediate goods is accounted for in the aggregate of
the cost of purchased inputs and the manufacturer's own labour, the cost of
domestic goods could not include the cost of intermediate goods produced by the
manufacturer itself.
[30] Ibid.
paras. 124 and 130.
[31] Appellate
Body Report, Canada – Autos, para. 130:
"if the level of the CVA requirements is very high, we can see that the
use of domestic goods may well be a necessity and thus be, in practice,
required as a condition for eligibility for the
import duty exemption". (emphasis original).
[32] Ibid.:"if
the level of the CVA requirements is very low, it would be much easier to
satisfy those requirements without
actually using domestic goods; for example, where the CVA requirements are set
at 40 per cent, it might be possible to satisfy that level simply with the
aggregate of other elements of Canadian value added, in particular, labour
costs". (emphasis original).
[33] Appellate Body Report, Canada – Autos,
para.123.
[34] First Written Submission of the United States, para.110-115.
[35] Appellate Body Report, Canada – Autos, para. 123. This view
was later reiterated by the Panel in US – Upland Cotton
and left untouched by the Appellate Body in the same case.
[36] Appellate Body
Report, EC－Large Civil Aircraft, paras. 1045, 1047. (emphasis added)
[37] Japan
notes that the dictionary defines the term "over" as meaning "in
preference to", "in excess of" or "more than". (The New Shorter Oxford English Dictionary, 4th
edn., L. Brown (ed.)(Oxford University Press, 1973, 1993). The term "over", therefore,
functions as a marker of comparison.
Thus, establishing whether the domestic product is used in preference to
the imported product necessarily implies a comparison between the use of the
former and the latter.
[39] Appellate Body Report, Canada – Autos, para. 123. (emphasis added)
[40] Appellate Body Report, US – Carbon
Steel (India), para. 4.446 (quoting Appellate Body Reports, US
– Countervailing and Anti-Dumping Measures (China), para. 4.101; US – Carbon Steel, para. 157).
[42] Appellate Body
Report, EC
– Large Civil Aircraft, paras. 1044, 1047.
[44] Ibid., para. 1047 notes that when making the comparison between the
"anticipated" and "baseline" ratios, "all other
things" must be equal.
[45] Ibid., para. 1046, citing Appellate Body Report, Canada－Aircraft, para. 167.
[46] Ibid.,paras. 1042-1045.
[47] Appellate Body Report, US –
Softwood Lumber IV, para. 64.
[48] US FWS, Section VI.D, including para. 129.
[49] Appellate
Body Report, US – Softwood Lumber IV, paras. 64 and 67.
[50] See Appellate Body Report, Canada –
Autos, para. 142.
[52] Ibid., paras. 82 and 87.
[54] Ibid., paras. 85-86.; Panel Report, US－Shrimp and Sawblades, para. 7.6.