EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES – MEASURES

AFFECTING TRADE IN LARGE CIVIL AIRCRAFT

RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE EUROPEAN UNION

AND CERTAIN MEMBER STATES

Report of the Panel

BCI deleted, as indicated [***]

TABLE OF CONTENTS

1   Introduction.. 13

1.1   Prior proceedings in DS316. 13

1.2   Complaint by the European Union. 13

1.2.1   Request for consultations. 13

1.2.2   Panel establishment and composition. 14

1.3   Panel proceedings. 14

1.3.1   General 14

1.3.2   Protection of Business Confidential Information and Highly
Sensitive Business Information. 15

1.3.3   Canada's request to participate in the proceeding as a third party. 15

1.3.4   Preliminary ruling on the Panel's terms of reference. 15

1.3.5   Request to file an additional submission regarding the future of
the A380 LCA programme. 16

1.3.6   Request relating to the United States' comments. 16

2   Factual aspects. 17

2.1   Product at issue. 17

2.2   Measures at issue. 17

3   Parties' requests for findings and recommendations. 17

4   Arguments of the parties. 18

5   Arguments of the third parties. 18

6   Interim review.. 18

7   Findings. 18

7.1   Introduction. 18

7.1.1   Procedural background. 18

7.1.1.1   Original proceeding. 18

7.1.1.2   First compliance proceeding. 19

7.1.1.3   Second compliance proceeding. 20

7.1.2   The Panel's task in this compliance proceeding. 20

7.2   The European Union's 17 May 2018 compliance communication to the DSB. 22

7.2.1   Introduction. 22

7.2.2   Measures alleged to achieve withdrawal of the A380 LA/MSF and A350XWB LA/MSF subsidies and to contribute to the removal of their adverse effects within the meaning of
Article 7.8 of the SCM Agreement 22

7.2.2.1   The [***] amendments to the French, German, Spanish and UK A380 LA/MSF agreements (measures 1–4) 22

7.2.2.2   The [***] amendment to the German A350XWB LA/MSF agreement (measure 5) 23

7.2.2.3   Repayment of outstanding UK A350XWB LA/MSF in 2018 (measure 6) 24

7.2.2.4   Withdrawal, through amortisation of the "benefit" conferred by the A380 and
A350XWB LA/MSF agreements (measures 7 and 8) 24

7.2.3   Measures alleged to constitute appropriate steps to remove the adverse effects of the A380 LA/MSF and A350XWB LA/MSF subsidies within the meaning of Article 7.8 of the
SCM Agreement 25

7.2.3.1   Amortisation of the "benefit" conferred by the A380 LA/MSF agreements
and A350XWB LA/MSF agreements (measures 9 and 14) 25

7.2.3.2   Non-subsidised investments in A380 and A350XWB family aircraft
(measures 10 and 15) 25

7.2.3.3   Reduced draw down of principal under the French A380 LA/MSF agreement and the French and UK A350XWB LA/MSF agreements (measures 11 and 16) 26

7.2.3.4   Attenuation of the causal link between A380 LA/MSF and A350XWB LA/MSF and the launches of the A380 and the A350XWB due to the passage of time (measures 13 and 17) 26

7.2.3.5   Cancellation or completion of A380 deliveries and pending deliveries, and the
completion or conversion of A350XWB deliveries in certain country markets
(measures 12 and 18) 26

7.2.4   Observations regarding the European Union's measures or steps taken to achieve compliance. 27

7.3   The European Union's request for a preliminary ruling that the United States' claims
against certain research and technological development measures are outside the
Panel's terms of reference. 27

7.3.1   Procedural background. 27

7.3.2   The R&TD measures the United States challenges in this proceeding and
relevant findings from previous stages of this dispute. 28

7.3.3   Whether the United States' claims against the R&TD measures are outside the
Panel's terms of reference. 30

7.3.3.1   Introduction. 30

7.3.3.2   Are the R&TD measures identified in the European Union's panel request?. 30

7.3.3.3   Do the challenged R&TD measures fall within the Panel's terms of reference,
even though they are not specifically identified in the European Union's panel request?. 32

7.3.4   The United States' claims against R&TD measures that were subject to findings in the original proceedings or were in existence at the time of the first compliance proceeding. 36

7.3.5   The United States' claims against the Eighth Framework Programme. 41

7.3.5.1   Timing. 43

7.3.5.2   Nature. 43

7.3.5.3   Effects. 45

7.3.6   Conclusions. 46

7.4   Whether the A350XWB and A380 LA/MSF subsidies have been withdrawn for the
purpose of Article 7.8 of the SCM Agreement 47

7.4.1   Introduction. 47

7.4.2   Guidance from the first compliance proceeding regarding the obligation to
"withdraw" the subsidy contained in Article 7.8 of the SCM Agreement 47

7.4.3   The [***] amendment to the German A350XWB LA/MSF agreement 49

7.4.3.1   Main arguments of the parties. 49

7.4.3.2   Evaluation by the Panel 51

7.4.3.2.1   Features of the amended German A350XWB LA/MSF loan agreement 51

7.4.3.2.2   The relevant analytical framework. 52

7.4.3.2.3   Whether the [***] amendment has aligned the terms of the
German A350XWB LA/MSF agreement with a market benchmark. 58

7.4.4   Repayment of the UK A350XWB LA/MSF loan on subsidized terms. 60

7.4.4.1   Main arguments of the parties. 60

7.4.4.2   Evaluation by the Panel 61

7.4.4.2.1   Has the UK A350XWB LA/MSF loan been fully repaid?. 61

7.4.4.2.2   Whether the full repayment of outstanding principal and interest under the UK A350XWB LA/MSF agreement on subsidized terms has achieved the withdrawal
of the subsidy. 62

7.4.5   The European Union's claim that the French, German, Spanish and UK A380 LA/MSF subsidies have been withdrawn. 70

7.4.5.1   The [***] amendments to the French, German, Spanish and UK A380 LA/MSF loan agreements. 70

7.4.5.1.1   Main arguments of the parties. 70

7.4.5.1.2   Evaluation by the Panel 72

7.4.5.1.2.1   Features of the amended A380 LA/MSF loan agreements. 72

7.4.5.1.2.2   The relevant analytical framework. 73

7.4.5.1.2.3   Have the [***] amendments aligned the terms of the
A380 LA/MSF agreements with a market benchmark?. 74

7.4.5.2   Withdrawal of the Spanish A380 LA/MSF subsidy by means of the
amortization of benefit through the passage of time. 78

7.4.5.2.1   Main arguments of the parties. 78

7.4.5.2.2   Evaluation by the Panel 79

7.4.5.3   Whether Airbus' announcement to "wind down" the A380 programme achieves withdrawal of the French, German, Spanish and UK A380 LA/MSF subsidies. 81

7.4.5.3.1   Main arguments of the parties. 81

7.4.5.3.2   Evaluation by the Panel 82

7.4.5.3.2.1   The [***] "wind-down" announcement 83

7.4.5.3.2.2   The [***] agreement between [***] and Airbus. 84

7.4.6   Conclusions. 85

7.5   Whether the European Union and the relevant member States have complied with
the requirement to "take appropriate steps to remove the adverse effects" under the
terms of Article 7.8 of the SCM Agreement 86

7.5.1   Introduction. 86

7.5.2   The appropriate counterfactual 87

7.5.3   The appropriate reference period. 88

7.5.4   Effects of the A380 and A350XWB LA/MSF subsidies through 2013. 89

7.5.4.1   Appellate Body findings concerning the market presence of the A380 through 2013. 90

7.5.4.1.1   Effects of the A380 LA/MSF subsidies on the A380. 90

7.5.4.1.2   Causation of lost sales in the VLA product market 92

7.5.4.1.3   Causation of impedance in the VLA product market 93

7.5.4.2   Appellate Body findings concerning the market presence of the A350XWB
through 2013. 95

7.5.4.2.1   Effects of A380 and A350XWB LA/MSF subsidies on the A350XWB. 95

7.5.4.2.2   Causation of lost sales in the twin-aisle product market 96

7.5.4.3   Conclusion – effects of the A380 and A350XWB LA/MSF subsidies through 2013. 97

7.5.5   Effects of A380 and A350XWB LA/MSF subsidies after 2013 and to the present day. 97

7.5.5.1   Aggregation of the effects of A380 and A350XWB LA/MSF subsidies. 98

7.5.5.2   Conditions of competition and product markets. 99

7.5.5.3   Market presence of the A380, A350XWB and A330neo after 2013 in the
absence of the A380 and A350XWB LA/MSF subsidies. 100

7.5.5.3.1   Airbus' counterfactual competitive position after 2013. 101

7.5.5.3.2   Airbus' counterfactual financial condition after 2013. 105

7.5.5.3.2.1   Relevant findings of the first compliance panel 105

7.5.5.3.2.2   The Wessels Report 106

7.5.5.3.2.3   The Airbus Counterfactual Launch Statement 107

7.5.5.3.2.4   Savings from the absence of A380 and A350XWB development costs. 108

7.5.5.3.2.5   Conclusion — Airbus' counterfactual financial condition post-2013. 109

7.5.5.3.3   Airbus' counterfactual technological and production capabilities after 2013. 109

7.5.5.3.4   Counterfactual demand. 111

7.5.5.3.4.1   A380. 111

7.5.5.3.4.2   A350XWB. 112

7.5.5.3.4.3   A330neo. 113

7.5.5.3.5   Conclusions – counterfactual market presence of the A380,
A350XWB and A330neo after 2013. 113

7.5.5.3.5.1   A380. 113

7.5.5.3.5.2   A350XWB. 115

7.5.5.3.5.3   A330neo. 116

7.5.5.4   Factors allegedly attenuating the causal link between A380 and A350XWB LA/MSF subsidies and any present adverse effects. 118

7.5.5.4.1   "Timing out" of the effects of the A380 and A350XWB LA/MSF subsidies. 118

7.5.5.4.2   "Amortization" of the benefit of the A380 and A350XWB LA/MSF subsidies. 119

7.5.5.4.3   "Less than full drawdown" of certain LA/MSF subsidies. 120

7.5.5.4.4   "Non-subsidized investments" in the A380 and A350XWB. 121

7.5.5.5   "Wind-down" of the A380 programme. 124

7.5.6   The impact of the "product" effects of A380 and A350XWB LA/MSF subsidies in the relevant product markets. 126

7.5.6.1   Impedance and/or displacement 127

7.5.6.1.1   VLA product market 128

7.5.6.1.2   Twin-aisle product market 130

7.5.6.2   Significant lost sales. 132

7.5.6.2.1   VLA product market 132

7.5.6.2.2   Twin-aisle product market 135

7.5.7   Conclusions. 136

8   Conclusions and Recommendations. 136