before the appellate body of the world trade...

Before the Appellate Body

of the World Trade Organisation

European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft

(AB-2010-1 / DS316)

Opening Statement of the European Union at the Second Hearing

Contains no BCI or HSBI

Geneva 9 December 2010

EC – Measures Affecting Trade in Large Civil Aircraft Second Opening Statement (AB-2010-1 / DS316) European Union

Contains no BCI or HSBI ___________________________________________________________________________________________________________

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TABLE OF CONTENTS

I. INTRODUCTION .......................................................................................................................................... 1

II. 1992 AGREEMENT....................................................................................................................................... 1

III. ARTICLE 11 OF THE DSU .......................................................................................................................... 3

IV. ALLEGEDLY SUBSIDISED PRODUCT.................................................................................................... 4

V. PRODUCT MARKET ................................................................................................................................... 5

VI. DISPLACEMENT .......................................................................................................................................... 8

VII. CAUSATION – SINGLE-AISLE LOST SALES AND DISPLACEMENT............................................ 11

VIII. LOST SALE – EMIRATES A380 ............................................................................................................... 23

IX. CAUSATION – A380 LAUNCH ................................................................................................................. 24

X. NON-MSF CAUSATION............................................................................................................................. 28

XI. MSF BENEFIT ............................................................................................................................................. 32

XII. FRENCH CAPITAL CONTRIBUTIONS.................................................................................................. 32

XIII. CONCLUSION ............................................................................................................................................. 32



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TABLE OF CASES

Short Title Full Case Title and Citation

Australia – Apples Appellate Body Report, Australia – Measures Affecting the Importation of Apples from New Zealand, WT/DS367/AB/R, circulated 29 November 2010

Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 and 2, adopted 23 July 1998, and Corr. 3 and 4, DSR 1998:VI, 2201

Korea – Commercial Vessels Panel Report, Korea – Measures Affecting Trade in Commercial Vessels, WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749

US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009

US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, 3

US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R, Corr.1, and Add.1 to Add.3, adopted 21 March 2005, as modified by Appellate Body Report WT/DS267/AB/R, DSR 2005:II, 299

US – Upland Cotton (Article 21.5 – Brazil)

Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil, WT/DS267/AB/RW, adopted 20 June 2008

US – Upland Cotton (Article 21.5 – Brazil)

Panel Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the DSU by Brazil, WT/DS267/RW and Corr.1, adopted 20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW



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I. INTRODUCTION

1. Mr. Chairman, Members of the Division. As directed by your procedural rulings,

our opening statement this morning will focus on adverse effects related issues,

and will respond to selected US arguments.

II. 1992 AGREEMENT

2. The first point to which we would briefly like to return relates to a fundamental

defect in the US adverse effects case: we do not believe that the United States is

entitled to purse findings and/or recommendations about the alleged adverse

effects of measures to which the United States consented.

3. The US argues that the 1992 Agreement was and remains irrelevant to any

assessment of the MSF measures because one of its recitals states the parties’

intention to act without prejudice to their rights and obligations under the GATT

and under other multilateral agreements negotiated under the auspices of the

GATT. We discussed this recital (it is not of course a provision) during the first

hearing. We pointed out that, given the date on which the 1992 Agreement

entered into force, both references to the GATT can only be references to the

GATT 1947, not the GATT 1994. We further pointed out that the category of

“multilateral agreements negotiated under the auspices of the GATT [1947]” is

obviously already populated with the relevant Tokyo Round agreements, and that

it is entirely unclear, and indeed inherently implausible, that the phrase should be

construed as catching an unspecified and unlimited number of future agreements,

non-existent at the time the 1992 Agreement was concluded, and this in perpetuity.

We also pointed out that, at least in the context of alleged adverse effects, there is

no difficulty vis a vis other WTO Members in our seeking to rely on the 1992

Agreement, because the matter is entirely bilateral between the United States and

the European Union. We are not arguing that the 1992 agreement would be

relevant to an adverse effects claim advanced by another WTO Member.

4. Even accepting, arguendo, that there is ambiguity in the recital, we do not see that

such ambiguity could render the provisions of the 1992 Agreement meaningless, or



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allow the United States to violate the general public international law principle of

good faith or deny the facts – that is, the real world.

5. It is a fact that the recitals of each of the MSF measures recall the EU Member

States’ objective aim of complying with the 1992 Agreement. It is also a fact that,

in concluding the 1992 Agreement the parties recorded their consensus ad idem or

meeting of minds on the question of how the relevant “interests” of the United

States and the European Union were to be delineated in the area of government

measures relating to LCA. These interests were circumscribed in reciprocal

terms: the United States judged it to be in the interests of the United States to

consent to the MSF measures because the European Union was consenting to the

measures to be adopted by the United States; and the European Union, in a similar

calculus, reached a similar conclusion. It is precisely because the European Union

assumes good faith on the part of the United States that it assumes that the United

States would not make conflicting assertions about what its interests actually were

or are in relation to the same matter and the same time period. In our view, this is

what contributes to demonstrating the inherent implausibility of a number of the

Panel’s findings that we have challenged on appeal.

6. For example, how could MSF measures to which the US consented plausibly cause

effects adverse to the interests of the US in Brazil and Mexico when Boeing’s

share of those markets actually rose during the reference period? How could MSF

measures to which the US consented plausibly cause displacement effects in

various other markets adverse to the interests of the US – in the complete absence

of any trend? How could MSF measures – to which the US consented – relating to

products between which competition is “non-existent” or negligible be plausibly

lumped together to generate meaningless numbers and findings, even in the

complete absence of any sales of the relevant aircraft (as, for example, in the case

of Brazil)?

7. No doubt it is precisely difficulties of this sort that led the United States, on the

very same day that it started these proceedings, to purport to abrogate the 1992

Agreement. The United States cannot, however, just brush the matter off like that

from one day to the next, since the relevant MSF measures were conceived and



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brought into existence during the partnership of the 1992 Agreement. Thus, to the

extent that they constitute continuing situations, they are situations for which, as a

matter of fact and good faith, the United States carries equal responsibility.

III. ARTICLE 11 OF THE DSU

8. Next, let me also address a point on Article 11 of the DSU. In its Closing

Memorandum,1 the United States asked you to ignore your clear and repeated

statements in US – Continued Zeroing and US – Upland Cotton (Article 21.5 –

Brazil) that Article 11 of the DSU requires panels to provide “reasoned and

adequate explanation{s}”2 and “coherent reasoning”.3 Your most recent report in

Australia – Apples, however, confirms that a panel’s reasoning (or lack of it) is a

matter properly raised under Article 11 of the DSU.4

9. The Appellate Body also clarified that a “panel’s choice not to discuss a piece of

evidence that on its face appears to be favourable to the arguments of one of the

parties might suggest bias or lack of even-handedness in the treatment of the

evidence by the panel, even if in fact the panel is making an objective assessment

of the facts”.5 It concluded that “a panel’s disregard of certain experts’ testimony

may be evidence of a more systemic fault in the standard of review applied by that

panel in its overall assessment of the facts”.6

1 See, e.g., US Closing Memorandum, para. 77 (Title: “Article 11 of the DSU does not Impose an Obligation for a Panel to Provide a “Reasoned and Adequate Explanation” of its Findings”). See also US Closing Memorandum, paras. 77-83. 2 Appellate Body Report, US – Continued Zeroing, para. 338; Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 288, 291-294 and footnote 618. 3 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 294, footnote 618. 4 Appellate Body Report, Australia – Apples, para. 275 (“Article 11 requires a panel, in its reasoning on a given issue, to weigh and balance all the relevant evidence, including testimony by the experts. A panel may reproduce the relevant statements by the experts, but still fail to make an objective assessment of the facts under Article 11 if it then fails to properly assess the significance of these statements in its reasoning, as the Appellate Body found in US/Canada – Continued Suspension. Conversely, a panel that does not expressly reproduce certain statements of its appointed experts may still act consistently with Article 11, especially when the panel’s reasoning reveals that it has nevertheless assessed the significance of these statements or that these statements are manifestly not relevant to the panel’s objective assessment of the facts and issues before it.”)(underlining added). 5 Appellate Body Report, Australia – Apples, para. 270, citing Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 292-295. 6 Appellate Body Report, Australia – Apples, para. 276.



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10. Thus, whether a panel’s “assessment” is “objective” includes examining whether

its reasoning or explanation is inadequate or incoherent. These considerations are

highly relevant to the European Union’s appeal of, inter alia, the MSF benefit and

export subsidy issues, but also to some of the adverse effects appeals.

IV. ALLEGEDLY SUBSIDISED PRODUCT

11. The Panel erred when finding that “there is no legal requirement in the SCM

Agreement for a panel to make a determination regarding the ‘subsidized product’

independent of the complaining Party’s allegations”.7 By ceding to the

complaining Member such absolute and unreviewable discretion, the Panel acted

inconsistently with Articles 5(c) and 6.3 of the SCM Agreement, as well as Article

11 of the DSU.8

12. The Panel rejected the EU’s argument that a panel must consider the ordinary

meaning of “subsidized product” in its context, as required by Article 31.1 of the

Vienna Convention. The Panel reasoned that it should not do so given what it

believed to be “a complete absence of any guidance in the text of the SCM

Agreement as to the bases on which a decision as to the appropriate subsidized

product might be made”.9

13. The United States, in its Appellee Submission, now appears to agree with the

European Union, defending the Panel as having adopted “an approach that requires

an objective assessment as to whether the subsidized product identified by the

complaining Member satisfies the SCM Agreement”.10 The Panel, however, did no

such thing. It merely examined the factors that might be relevant, and I quote,

“{e}ven if it were appropriate or necessary for panels in disputes involving claims

of adverse effects to consider the question of the subsidized product”.11 This,

7 Panel Report, para. 7.1650 (emphasis added). 8 EU Appellant Submission, paras. 298-314; Panel Report, paras. 7.1650, 7.1652-7.1654, 7.1656 and 7.1662. 9 Panel Report, para. 7.1656. 10 US Appellee Submission, para. 509. 11 Panel Report, para. 7.1663 (emphasis added). See also id. (“in our view, it would at most be appropriate for a panel to start with the complaining Member’s allegations, and consider whether ... the complaining Member has made a reasonable allegation regarding the product that benefits from the alleged subsidies in dispute”) (emphasis added).



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however, was dicta, and does not somehow cure the legal error that served as the

actual basis for the Panel’s decision on “subsidized product”.

14. This legal error also infected the rest of the Panel’s analysis under Article 6.3,

including in particular through its consideration of the impact on the “market” of

the subsidising Member or third country markets for purposes of assessing

displacement. The Panel never took a step back to consider whether the analysis

that the United States urged the Panel to conduct had any rational basis in view of

the further inquiries required by Articles 5(c) and 6.3 of the SCM Agreement.

V. PRODUCT MARKET

15. The Panel initially acknowledged in its discussion of the “subsidized product”

definition that the US “position regarding subsidized product has repercussions for

the entire case in terms of … the evidence and arguments with respect to whether

the subsidies in dispute caused the adverse effects alleged”.12 Yet, the Panel failed

to examine those repercussions for its analysis of the market. Instead, the Panel

continued by accepting uncritically the US allegations about the “market” and

“like product” at issue in a manner that directly flowed from the US

characterisation of the allegedly subsidised product. It stated explicitly that it

would “look{} at market share data for the subsidised product and like product

defined by the United States, that is, Airbus LCA and Boeing LCA”.13

16. Consequently, the Panel interpreted the term “market”, within the meaning of

Article 6.3(a) and (b), in a manner that was in lock step with the US’ subsidised

product definition. In the Panel’s own words, it rejected evidence demonstrating

the existing of separate product markets largely on the basis that it had previously

“rejected the premise underlying the European Communities’ submission of data

in this form, and {was} proceeding on the basis that the United States is entitled to

make out its case with respect to Airbus LCA as a single subsidized product”.14

Thus, the Panel did not require an examination of the existence, or lack thereof, of

12 Panel Report, para. 7.1660. 13 Panel Report, para. 7.1742. 14 Panel Report, para. 7.1755.



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competition among the actual products being purchased and sold in the real

world.15

17. The United States now asserts that the term “market” does not cover anything

other than a “geographic market”, because “the concept of ‘product’ is addressed

in the identification of the ‘subsidized product’ and the product that is ‘like’”.16

Combined with the Panel’s unquestioning acceptance of the “subsidized product”

alleged by the US, there would, therefore, simply be no opportunity to conduct a

critical analysis of the actual products at issue, and the actual or potential

competition among those products, regardless of how broad the alleged

“subsidized product” might be.

18. Moreover, when making its “{e}ven if it were appropriate”17 assessment, the Panel

inappropriately considered supply- and causation-related factors, rather than

assessing the existence of market share losses on the basis of competition between

products.18 Supply-related factors such as efficiencies that result from producing

multiple models of aircraft, or causation-related factors such as bundled sales or

commonality, are not relevant to the enquiry that must be pursued when

considering the scope of the “market” for purposes of identifying market share

losses. Similarly, the statements emphasised by the United States, addressing

whether the European Union or Airbus considers it important to offer a full range

of LCA, are not relevant to the competitive realities of the industry, where demand

from customers reflects their needs in light of the various products available.19

19. The Panel’s interpretation of “market”, and the Panel’s subsequent analysis, is also

inconsistent with the ordinary meaning of the term “market”. As the Appellate

Body found in US – Upland Cotton, “two products would be in the same market if

they were engaged in actual or potential competition in that market”.20 If the

15 EU Appellant Submission, paras. 341-351. 16 US Appellee Submission, para. 541. 17 Panel Report, para. 7.1663 (emphasis added). 18 EU Appellant Submission, paras. 352-357. 19 US Appellee Submission, para. 552. 20 Appellate Body Report, US – Upland Cotton, para. 408.



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drafters of the SCM Agreement had intended to limit the term “market” to

“geographic market”, as did both the Panel and the United States in this dispute,

they would have so indicated.

20. As the European Union has also detailed, the Panel’s analysis, in turn, violated

Article 11 of the DSU, as it marginalised and disregarded the extensive evidence

demonstrating the existence of multiple product markets within the geographic

“market” for the alleged “subsidized product”.21 For example, the Panel did not

address or discuss the evidence showing that in every sales campaign where

Airbus won with its single-aisle A320 family LCA, Airbus competed only against

the Boeing single-aisle models. Nor did the Panel address evidence regarding

disparate price trends for the different aircraft types.22 The Panel failed to do so

because it accepted without question the US position that it must consider only the

geographic “markets” in which the alleged “subsidized products” were sold,

without any consideration for the diverse and varied content of the groups of

products covered by the “subsidized product” umbrella.

21. The Panel’s analysis of competition implies that, when assessing displacement,

two products can be in separate markets only if there is absolutely “no

competition” between them at all.23 In fact, the Panel went even further,

considering that a finding of “non-existent” competition among products at the

“ends of the range of models offered by each manufacturer”, such as between the

single-aisle Boeing 737 and the 555-seat A380, would still be insufficient to force

the Panel to consider whether its product market approach distorted its findings.24

22. If upheld, this mode of analysis, including this legal interpretation of “subsidized

product” and “market”, would open the door to future panels finding that they

need not consider whether there is competition among specific products. Such

groupings could be as broad as, for example, “any vehicle with four wheels”, “any

21 EU Appellant Submission, paras. 359-370; see Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 293-295 (“under Article 11 of the DSU … ‘a panel has the duty to examine and consider all the evidence before it’”). 22 EU Appellant Submission, paras. 363-364. 23 See EU Appellant Submission, paras. 346-348, citing Panel Report, para. 7.1668. 24 See EU Appellant Submission, para. 348.



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vehicle with wings”, or “any vehicle that floats”, as long as the complaining

Member can demonstrate that those products are subsidised, and that the abstract

category of “like product” is drawn as widely as the abstract category of

“product”, so as to encompass the same things, no matter how heterogeneous. On

this view, ultimately, the “product” and the “like product” could be “all goods”.

This cannot be sufficient to demonstrate the “homogeneity of conditions of

competition” that helps define the “scope of a ‘market’”, pursuant to Appellate

Body guidance, and which is a necessary element of any meaningful economic

analysis under the SCM Agreement.25

23. Rather than findings of displacement of “Boeing LCA” as a whole, a proper

review of the products that actually compete would have led to a more precise and

objective finding. The distortion caused by the Panel’s approach is illustrated by

the tables showing displacement on the basis of (i) five individual LCA product

markets; and (ii) three individual product markets, in the EU’s Appellant

Submission.26 It is particularly striking that both approaches produce similar

results, demonstrating the robustness and reasonableness of our approach and our

underlying point: if products do not compete they cannot displace each other.

24. In short, the United States simply has no answer to the EU’s demonstration that

the Panel’s analysis of displacement in a geographic “market”, in combination

with a refusal to perform an objective review of the alleged “subsidized product”,

led to findings of serious prejudice that simply have no basis in reality.27

VI. DISPLACEMENT

25. The EU’s appeal, under Articles 5 and 6.3(a) and (b) of the SCM Agreement and

Article 11 of the DSU, of the Panel’s displacement and threat of displacement

findings is straightforward.28

25 Appellate Body Report, US – Upland Cotton, para. 408. 26 See EU Appellant Submission, at Displacement Annex (Annex III), Section 2, para. 7. 27 See EU Appellant Submission, paras. 379-380. 28 EU Appellant Submission, paras. 315-392.



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26. First, and even assuming the Panel was correct in identifying only a single product

market, the Panel found that Boeing lost market share in Brazil and Mexico.29 A

review of the undisputed data30 reveals, however, that the Panel’s finding is simply

wrong.31 Over the relevant 2001-2006 reference period, Boeing gained market

share in both countries.32 Thus, there was no factual basis for the Panel to find that

Boeing was displaced from either of these markets. The United States does not

contest this appeal in its Appellee Submission.33

27. Second, the Panel erred in finding that Boeing lost market share in five markets

(Brazil, Chinese Taipei, Korea, Mexico and Singapore).34 A displacement claim

under Articles 6.3(a) and (b) and 6.4 of the SCM Agreement requires “clear trends”

of a decline in the complaining Member’s market share – as the Panel itself

initially acknowledged. No such trends were evident. The United States argues

that the Panel merely found it “more difficult” to identify “clear trends”, implying

that some trend, albeit difficult to detect, existed with respect to market shares in

these country markets.35 But the Panel did not just find it “difficult” to discern

trends; it found it “impossible” to so discern,36 even applying the US-preferred

single LCA market.

28. The European Union’s third displacement appeal is related to our appeal regarding

the Panel’s erroneous single LCA product market finding. The Panel’s

displacement market share “analysis” consisted of bundling widely different LCA

into a single market, thereby hiding and exaggerating actual developments in

competitive markets. The data demonstrate the distortions in the Panel’s

29 Panel Report, para. 7.1785. See also Panel Report, para. 7.1773. 30 See, e.g., EU Appellant Submission, para. 332 and footnotes 339 and 439. 31 EU Appellant Submission, paras. 332-334. 32 See EU Appellant Submission, paras. 332-333. 33 See US Appellee Submission, para. 574. 34 Panel Report, para. 7.1791. 35 US Appellee Submission, para. 571 (“The Panel’s conclusion that identifying trends in these markets was ‘more difficult’ does not, however, mean that the Panel’s findings that there were such trends are incorrect”.) 36 Panel Report, para. 7.1786.



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displacement findings that flow from its “single market” approach.37 For example,

in Singapore and Chinese Taipei, Boeing did not lose market share in any of the

various markets where it competed head-to-head against Airbus products.38 But

the Panel’s erroneous cumulative assessment gives the false impression that

Boeing did lose market share. This example shows how wrong the Panel was to

claim – without any reasoning or support – that its displacement analysis would

not be distorted by its finding of a single LCA market.39

29. Finally, the Panel incorrectly found that Boeing was threatened with displacement

from the Indian market because “the immediate future {i.e., post 2006} is likely to

be an Indian market with more deliveries of Airbus LCA than of Boeing LCA”.40

The Panel ignored uncontested 2007 delivery data41 that Boeing’s delivery market

share “in the immediate future” actually increased.42 Analysis of an “imminent

threat” within the meaning of Article 6.3(b) requires examination of the most

recent market share developments.43 The United States does not dispute the legal

point. Instead, it claims that there is no delivery data available in the exhibit

referred to by the European Union.44 Looking at pages 10-31 of exhibit EC-987

reveals, however, that the exhibit lists 2007 deliveries to India.

30. In sum, for varying reasons, the Panel’s displacement findings contain errors for

all the country markets involved. For your convenience, the European Union

includes a table that summarises its appeals.

37 EU Appellant Submission, paras. 377-385 and Displacement Annex (Annex III) of the EU Appellant Submission, Section 2. 38 EU Appellant Submission, paras. 377-385 and Displacement Annex (Annex III) to the EU Appellant Submission, Section 2. 39 Panel Report, paras. 7.1679, 7.1742. 40 Panel Report, para. 7.1784. 41 See, e.g., EU Appellant Submission, para. 332 and footnotes 339 and 439. 41 EU Appellant Submission, paras. 332-334. 42 EU Appellant Submission, paras. 388-390. 43 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 224. 44 US Appellee Submission, para. 578.



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BRAZIL

No displacement Panel erroneously found that Boeing’s market share decreased during 2001-2006.

No trends Panel found displacement even though it was “impossible” to draw any conclusions concerning trends.

Distortion Overly broad “market” definition: Individual market analysis reveals Boeing was not displaced in any LCA market.

MEXICO

No displacement Panel erroneously found that Boeing’s market share decreased during 2001-2006.



CHINESE TAIPEI



SINGAPORE



KOREA


Distortion Overly broad “market” definition: Individual market analysis reveals Boeing was only displaced in single-aisle and 200-300 seat LCA market.

AUSTRALIA

Distortion Overly broad “market” definition: Individual market analysis reveals Boeing was only displaced in single-aisle LCA market.

CHINA

State Monopoly Panel found displacement contrary to Art. 6.7 SCM Agreement - China operates monopoly of trade in LCA.

Distortion Overly broad “market” definition: Individual market analysis reveals Boeing was only displaced in single-aisle and 200-300 seat LCA market.

EU

Distortion Overly broad “market” definition: Individual market analysis reveals Boeing was only displaced in single-aisle, 200-300 seat LCA and 300-400 seat LCA markets.

INDIA

2007 Data Ignored Review of 2007 delivery data reveals Boeing’s market share “in the immediate future” did not decrease.

VII. CAUSATION – SINGLE-AISLE LOST SALES AND DISPLACEMENT

31. Next, the European Union addresses its appeal of the Panel’s causation findings

for the four single-aisle LCA sales to easyJet, Air Berlin, Air Asia and Czech

Airways, as well as for the displacement the Panel found to exist in the EU and

certain third country markets.45

32. The Panel’s causation findings suffer from fundamental errors.

45 EU Appellant Submission, paras. 393-582 and Annex I.



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33. The Panel found that, over a period of almost 40 years, the subsidies caused

Airbus to be able to launch its LCA “as originally designed and at the time that it

did”,46 “as and when it did”,47 or “at the time it did”.48 The Panel also described

the alleged subsidies as enabling the “availability of a particular model or models

of LCA”49 and Airbus’ “market presence” with the aircraft actually sold.50 The

Panel reiterated that it did not “conclude that Airbus necessarily would not exist at

all but for the subsidies, but merely that it would, at a minimum, not have launched

and developed the LCA models it actually succeeded in bringing to the market”.51

34. In their totality, these findings can only be read as evidencing the Panel’s

acceptance that a non-subsidised Airbus could exist, selling and delivering fewer

and different models of LCA. Indeed, in rejecting US arguments that the alleged

subsidies caused Airbus to price lower, the Panel found that it “cannot draw any

firm conclusions on the price effects of the presence of subsidized Airbus LCA”,52

because competition in a scenario with non-subsidised Airbus LCA could “very

well be even more fierce”.53 This demonstrates that, for the Panel, such

competition was not just some “unlikely”54 possibility, as the United States

argues,55 but that this possibility had significant implications for a key portion of

the causation findings involving price suppression.

35. Inexplicably, having accepted potential competition from a non-subsidised Airbus

as a key reason for rejecting the US price suppression claims, the Panel then did

not complete its analysis of competition from a non-subsidised Airbus, in

analysing the US lost sales and displacement claims. The Panel concluded that the

subsidies caused Boeing to lose, between 2001 and 2006, all of the claimed lost

46 Panel Report, paras. 7.1934, 7.1936, 7.1938, 7.1939 (emphasis added). 47 Panel Report, paras. 7.1984, 7.2025 (emphasis added). 48 Panel Report, para. 7.1985 (emphasis added). 49 Panel Report, paras. 7.1985, 7.1987 (emphasis added). 50 Panel Report, paras. 7.1984, 7.1985, 7.1986, 7.1993 (emphasis added). 51 Panel Report, para. 7.1993 (emphasis added). 52 Panel Report, para. 7.1996. 53 Panel Report, para. 7.1995. 54 Panel Report, para. 7.1984. 55 US Appellee Submission, paras. 588, 617, 632-634.



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sales (including the four specific single-aisle LCA sales) and all of the claimed

displacement of market shares in the country markets at issue.56 That conclusion

does not follow legally or logically from the earlier findings I discussed a moment

ago. Those findings imply that a non-subsidised Airbus could exist and offer

different and fewer LCA, and allow for the possibility that a non-subsidised Airbus

could have secured the sales and market shares at issue.

36. The European Union has appealed the Panel’s failures in this respect on several

related grounds. First, the Panel effectively presumed causation for both lost sales

and displacement.57 Second, the Panel failed to establish the required “chain of

causation”58 between the alleged subsidies and the lost sales and displacement

claimed.59 Both of these errors are under Articles 5 and 6.3 of the SCM

Agreement.

37. Whether framed as an erroneous “presumption”, or as a failure to complete the

“chain of causation”, the Panel erred in not undertaking crucial analytical steps,

and make the findings necessary to establish “a genuine and substantial

relationship of cause and effect”60 between the lost sales and displacement

claimed, on the one hand, and the alleged subsidies, on the other. Assessing those

effects required the Panel to complete its counterfactual assessment of the sales

and market shares that would have existed during 2001-2006 but for the subsidies.

That assessment must include some, or all, of the following conditions of

competition: a non-subsidised Airbus’ (i) product offerings, including (ii) their

technological capabilities, (iii) whether these products would, in the sales and

markets at issue, suffer from a lack of commonality, or (iv) a lack of price

competitiveness, and (v) whether other non-attribution factors played a role in

Airbus (and not Boeing) securing the sales and market share at issue.61

56 Panel Report, paras. 7.1993, 8.2. 57 EU Appellant Submission, paras. 446-482, 528-543 58 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 372. 59 EU Appellant Submission, paras. 483-505, 544-572. 60 Appellate Body Report, US – Upland Cotton, para. 438; Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 374. 61 See, e.g., EU Appellant Submission, paras. 452-453, 471, 489, 493, 530-534, 549, 558-568.



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38. In its Appellant Submission, and in Annex I thereto, the European Union provided

examples of available evidence to give the Appellate Body an appreciation of the

existing evidence from which the Panel could have conducted an assessment of the

counterfactual conditions of competition during 2001-2006. The Panel’s failure to

do so left the causation analysis incomplete. That amounts to reversible legal error

under Articles 5 and 6.3 of the SCM Agreement.

39. Third, and in the alternative, the Panel violated Article 11 of the DSU by failing to

reconcile (i) its counterfactual findings regarding the potential existence of a non-

subsidised Airbus and its rejection of the US price suppression claim based on

potential fierce competition by “that” Airbus, with (ii) its findings of causation for

lost sales and displacement, where that potentiality is largely ignored.62 The

totality of the Panel’s findings imply that a non-subsidised Airbus could exist and

sell and deliver LCA, enabling it to potentially secure the four specific sales and

the market share increases at issue. Given the logical gaps in its causation findings

on lost sales and displacement, the Panel’s reasoning is both incoherent and lacks

the reasoned and adequate explanation required by Article 11 of the DSU. In

short, the Panel’s lost sales and displacement causation findings suggest a “lack of

even-handedness in the treatment of the evidence”.63

40. The European Union will not repeat today the extensive argumentation set out on

the issue of causation in its Appellant Submission.64 Rather, we will focus on the

various US arguments in response thereto.

41. In its Appellee Submission, the United States makes much of a Panel finding that

the existence of a non-subsidised Airbus would be “unlikely”, allegedly

undermining the EU’s appeal.65 Yet, the totality of the Panel’s findings do not

conclude or support a finding that a non-subsidised Airbus would not exist. If they

had, the European Union would be before you appealing that finding. The

European Union has pointed to extensive and repeated findings by the Panel

62 EU Appellant Submission, paras. 506-516, 573-581. 63 Appellate Body Report, Australia – Apples, para. 270; Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 292. 64 EU Appellant Submission, paras. 393-582. 65 US Appellee Submission, paras. 588, 617, 632-634.



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positing that a non-subsidised Airbus could exist – including the Panel’s finding

that competition by a non-subsidised Airbus could result in price competition that

could be as fierce, if not more fierce, than pricing actually offered by Airbus.66

The US reference to a single use of the term “unlikely” only strengthens the

European Union’s argument that the Panel’s causation findings are incoherent and

inconsistent, and must be reversed.

42. The main US argument, however, is that there was no need – indeed, that it was

illegal – for the Panel to have considered the conditions of competition in the LCA

markets during 2001-2006 absent the subsidies.67 The United States asserts that

the Panel’s “core causation analysis”68 was over when it found that Airbus could

not have launched the products it did at the time it did without the subsidies, and

hence had found adverse effects.69

43. The US argument is fundamentally flawed, on at least two levels. First, the United

States errs when asserting that the Panel had already found causation before it

began its limited assessment of the counterfactual conditions of competition.70

Second, the United States errs when criticising the Panel for violating Articles 5

and 6.3 of the SCM Agreement by embarking on an ultimately incomplete

counterfactual analysis.71

44. With respect to the first error, the United States mischaracterises both the sequence

and the substance of the steps in the Panel’s causation analysis.72 The Panel began

its analysis by assessing the impact of the subsidies on Airbus’ product launch

decisions.73 The Panel itself clarified that, based on that analysis, it would draw

66 Panel Report, para. 7.1995. See also Panel Report, paras. 7.2009-7.2010, 7.2023-7.2024. 67 US Appellee Submission, paras. 494, 583, 584, 589, 615-617, 628 (“A ‘but for’ causation analysis does not permit, much less require, an analysis of one or more ‘counterfactuals’ regarding how the recipient of a subsidy might have evolved differently without the subsidy”). 68 US Appellee Submission, paras. 584, 585. 69 US Appellee Submission, para. 589 (“once the Panel determined what the effects of the subsidies were, its analysis was over”). 70 US Appellee Submission, paras. 589, 603. 71 US Appellee Submission, paras. 494, 583, 584, 589, 615-617, 628. 72 US Appellee Submission, paras. 596-613. 73 Panel Report, paras. 7.1880-7.1976.



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“certain initial conclusions”74 – not that it made a causation finding of lost sales

and displacement on the basis of that analysis, as the United States asserts.75

Indeed, the Panel’s “initial conclusions” applied to the United States’ lost sales,

displacement and price suppression claims. (We have already discussed how the

Panel later dismissed those price suppression claims based on a counterfactual

analysis). For all of the US serious prejudice claims, the Panel found it necessary

to go the next step and assess whether, in a counterfactual market situation absent

the subsidies, Boeing would have secured the sales, market shares, and alleged

higher prices at issue.76 Indeed, as it undertook this analysis, the Panel correctly

criticised the United States for “proceed{ing} too hastily from a conclusion that

Airbus products would not exist but for the subsidies to a conclusion that Boeing

would sell more aircraft and prices would be higher”.77 Thus, the Panel made no

findings of causation for lost sales and displacement until after it had engaged in

its incomplete counterfactual analysis,78 and after its limited assessment of non-

attribution factors.79 The Appellate Body can readily see this by looking at the

paragraph numbers of the Panel’s analysis cited by the United States.80

Accordingly, the United States errs in claiming that the Panel found causation

before it embarked on its analysis of the counterfactual market situation.81

74 Panel Report, para. 7.1880 (emphasis added). See also Panel Report, para. 7.1909 (“The implications of this apparent acceptance that Boeing would face competition in a world without LA/MSF (and the other subsidies at issue in this dispute) (the ‘counterfactual’ world) are discussed below. At this stage, however, we note the United States’ basic contention that, even if Airbus had entered the market in the absence of LA/MSF, it would have done so at different times and with different planes. In this respect we understand the United States to be arguing that whether the United States faced competition in the counterfactual world from an Airbus that launched LCA without LA/MSF, or from some other entity, that competition would be different, and that one way in which that difference would be manifest would be that the product line of the competitor would not be the equivalent of the actual Airbus product line”) (underlining added). 75 US Appellee Submission, paras. 589, 603 (“The Panel next concluded that by enabling Airbus to bring to market its LCA, the specific subsidies caused Boeing to lose its position in the EU and third country markets and at individual sales accounts in competition with the subsidised Airbus LCA”) (emphasis added) (no footnote omitted). 76 Panel Report, paras. 7.1977-7.1984. 77 Panel Report, para. 7.1979. 78 Panel Report, para. 7.1984 79 Panel Report, paras. 7.1985-7.1993. 80 US Appellee Submission, paras. 596-613. 81 See, e.g., US Appellee Submission, paras. 493-494, 589, 611, 614-617.



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45. But regardless of these sequencing issues, the United States errs in asserting that

the Panel needed to assess only the effects of MSF loans on the type and timing of

Airbus’ products.82 Yet, given that the “relevant time” for the A320 launch, for

example, was 1984 and given that the sales at issue took place fully 18-21 years

later (i.e., in 2002-2005), the Panel left unresolved the crucial issue whether a non-

subsidised Airbus could have launched “different LCA” at a later point in time so

as to compete for the sales at issue decades later. As even the Panel recognised,83

its initial product launch finding was inadequate because it did not identify what

the United States calls “the actual effects of the subsidies on competition”84 in

2001-2006 – many years after the subsidised launches.

46. This brings us to the second fundamental flaw in the US arguments – its assertion

that the Panel erred in even conducting a counterfactual analysis for lost sales and

displacement.85 This is a remarkable assertion on appeal, given the arguments and

counterfactual evidence the United States put before the Panel. The Panel

summarised the US argument as follows: “in essence the United States argues

that, in the absence of the challenged subsidies, Airbus would have fewer and

different LCA models .... Drawing on this view, the United States posits a

counterfactual in which the ‘U.S. LCA industry would produce and sell more

aircraft at higher prices than it does in the face of subsidized competition’”.86 The

United States even offered a short counterfactual report by a Nobel prize-winning

economist to argue that Boeing’s prices would be higher in 2001-2006 but for the

82 US Appellee Submission, para. 582. See also US Appellee Submission, paras. 494, 585, 587, 589, 595, 616. 83 Panel Report, para. 7.1979. 84 US Appellee Submission, para. 585. See also US Appellee Submission, paras. 587, 595. 85 US Appellee Submission, paras. 494, 583, 584, 589, 615-617, 628. 86 Panel Report, para. 7.1868 (emphasis added). See also Panel Report, paras. 7.1980 (“The United States also posits a situation where Airbus would have entered at a much later stage with a different quality LCA offering”); 7.1979 (“after reiterating its position that absent the subsidies Airbus would have fewer and different LCA products”), 7.1910 (“If the United States concedes that Boeing would, in the absence of LA/MSF, face some competition, it must presumably concede that at least some competing planes would have been launched (by Airbus or some other entity) over the period since Airbus launched its first LCA”), note 5585 (“In this respect the United States asserts ‘even if Airbus would have entered a particular LCA market segment at some other time with a different aircraft (in terms of technical capabilities, specifications, and other characteristics), the effect on the US LCA industry would have been different’. US SWS, para. 571”).



18

subsidies.87 Although the Panel did not find this evidence convincing,88 it

demonstrates that, before the Panel, the United States properly accepted the need

for an assessment of counterfactual sales and prices absent the subsidies.

47. The new US argument in these appeal proceedings is that the Panel only needed to

assess “the actual use of the subsidies in light of their impact on the recipient and

in relation to other factors actually present in the market”.89 The United States

sums this up by asserting that the Panel had to “focus on the market as it actually

existed absent the subsidies”.90 Of course, this dispute is all about the US claim

that the “actual” LCA market was distorted by subsidies to Airbus. How then can

there be an “actual” LCA market to examine in which subsidies are absent?

48. The new US argument on appeal that the Panel needed to focus solely on what the

United States terms “actual effects”91 implies that the Panel needed only to (i) look

to the actual loss of sales and market share and (ii) assess whether generally

Airbus would have been different, but for the subsidies. The US argument places

particular emphasis on the effect of MSF on Airbus’ launch decisions as the “core

aspect of its causation analysis”.92 But a causation analysis consistent with

Articles 5 and 6.3 cannot stop with the finding that the subsidies caused Airbus to

launch, develop and sell the LCA it did, beginning in 1969.93 The remaining key

causation issue is how the subsidies caused the conditions of competition to be

distorted during the 2001-2006 period and the adverse effects allegedly observed

by the Panel. This question could only be analysed by assessing whether, absent

the subsidies and faced with competition from a non-subsidised Airbus launching

different products at different times, Boeing (or the US LCA Industry) would have

87 Statement of Joseph E. Stiglitz and Bruce C. Greenwald, On the Question of the Impact of Subsidies on Supply and Prices in the LCA Market (Jan 21, 2008) (exhibit US-676), cited in Panel Report, paras 7.1994-7.1996. 88 Panel Report, para. 7.1995 (“the Stiglitz/Greenwald statement does not help us assess whether the prices that prevailed in 2001 to 2006 were higher or lower than those that would have resulted”). 89 US Appellee Submission, para. 582 (emphasis added). See also US Appellee Submission, paras. 494, 585, 587, 589, 595, 616. 90 US Appellee Submission, para. 595 (underlining added). 91 See, e.g., US Appellee Submission, paras, 494, 585, 587, 589, 595, 616. 92 US Appellee Submission, para. 584. See also US Appellee Submission, paras. 489, 618, 626. 93 US Appellee Submission, paras. 596-613.



19

secured each of the four single-aisle LCA sales and would have avoided the

market share losses in the various country markets at issue during the 2001-2006

reference period.

49. Consistent with previous panel and Appellate Body Reports, that assessment

naturally requires a comparison between the actual market situation and a

counterfactual market situation absent the subsidies, to isolate the market effects of

the subsidies.94 As one panel put it, it needed to assess the effect of the subsidies

on “the particular effects-related variable under examination”.95 In this dispute,

the effects-related variables at issue are sales and market shares, not Airbus’

product launches occurring decades before the alleged loss of sales and market

share.

50. Indeed, the US assertion that the causation analysis ended with a finding that the

subsidies caused Airbus to launch the LCA as and when it did, highlights the very

basis of the EU’s appeal – the Panel’s failure to go beyond its limited “core

analysis” and to assess what Boeing’s sales and market shares would be during

2001-2006 but for the subsidies.

94 Panel Report, US – Upland Cotton, paras. 7.1288 (“We need to examine whether these prices were suppressed, that it, lower than they would have been without the United States subsidies in respect of upland cotton”), 7.1279; Appellate Body Report, US – Upland Cotton, para. 432-433, 449; Panel Report, US – Upland Cotton (Article 21.5 – Brazil), para. 10.49 (“This in order to determine whether the effect of marketing loan payments and counter-cyclical payments to upland cotton producers is significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement, the Panel will determine whether, but for these subsidies, the world market price for upland cotton ‘would have increased {significantly}, or would have increased {significantly} more than was in fact the case’”) (inserts in original, footnotes omitted); Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 351 (“The identification of price suppression, therefore, presupposes a comparison of an observable factual situation (prices) with a counterfactual situation (what prices would have been) where one has to determine whether, in the absence of the subsidies (or some other controlling phenomenon), prices would have increased or would have increased more than they actually did”) (underlining added); Panel Report, Korea – Commercial Vessels, para. 7.612 (“As noted supra, we believe that the text of Article 6.3(c) implies a ‘but for’ approach to causation in respect of price suppression/price depression. Price suppression is the situation where prices have been restrained by something, and price depression is the situation where prices have been pushed down by something. So the question to be answered is whether the ‘something’ is subsidization. Looking at a counterfactual situation, i.e., trying to determine what prices would have been in the absence of the subsidy, seems to use the most logical and straightforward way to answer that question”) (underlining added); Panel Report, Indonesia – Autos, para. 14.215 (“it is not enough for the European Communities to demonstrate a decline in relative market shares; rather, the European Communities must demonstrate that ‘the effect of the subsidy is to displace or impede the imports’ of an EC-origin ‘like product’ into the Indonesian market, i.e., that some imports that would have occurred did not occur as a result of the subsidies”) (underlining added). 95 Panel Report, US – Upland Cotton, para. 7.1192.



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51. In short, the assessment of a counterfactual market situation absent the subsidies is

not “contrary to Articles 5 and 6.3”, as the US argues.96 It is the necessary

assessment that all previous panels in adverse effects disputes have undertaken.

52. The United States also uses colourful language to address a difficulty flowing from

its own causation theory – namely that adopting a causation theory based on

effects on product launches over a period of 40 years involves what it calls

“complicated speculation”.97 The United States labels the required counterfactual

market situation a “fantasy” or “fictitious” world,98 and an “alternate universe” or

“alternate reality”.99 These derogatory labels cannot, however, obscure the fact

that every adverse effects claim, in one form or another, involves examining what

the conditions of competition would be but for the effects of the subsidies. The

need for some “speculation” requires that the assessment be undertaken carefully –

something that complaining Members are of course required to take into account

themselves in framing a case, particularly when they wait for years, and then seek

review of pre-WTO measures in the distant past, to which they themselves

consented.

53. The Panel recognised the inherently speculative nature of the counterfactual

proposed by the United States.100 But it found that “{a} review of the literature,

much of which has been introduced as evidence in this dispute, can help narrow

96 US Appellee Submission, paras. 494, 583, 589, 615-617, 628 (“A ‘but for’ causation analysis does not permit, much less require, an analysis of one or more ‘counterfactuals’ regarding how the recipient of a subsidy might have evolved differently without the subsidy”). 97 US Appellee Submission, para. 588. See Panel Report, Korea – Commercial Vessels, para. 7.560 (“the nature of the demonstration that the complainant will need to make to establish causation in any given case, and the difficulty of doing so, will depend on a number of factors and factual circumstances .... Whatever the factual situation in a given case, the burden will be on the complainant to furnish specific factual evidence affirmatively demonstrating the causal link alleged, and the difficulty and ways of meeting this burden may be very different from one case to another. In all cases, if the complainant fails to meet this evidentiary burden, its serious prejudice claim will fail”) (underlining added, footnotes omitted). 98 US Appellee Submission, para. 585. 99 US Appellee Submission, paras. 587, 615. See also US Appellee Submission, para. 582 (“alternative universe”). 100 Panel Report, paras. 7.1868 (“in essence the United States argues that, in the absence of the challenged subsidies, Airbus would have fewer and different LCA models .... Drawing on this view, the United States posits a counterfactual in which the ‘U.S. LCA industry would produce and sell more aircraft at higher prices than it does in the face of subsidized competition’”); 7.1980 (“The United States also posits a situation where Airbus would have entered at a much later stage with a different quality LCA offering”).



21

down the range of possibilities”.101 As the European Union has argued at length in

its Appellant Submission, the Panel failed, however, to complete that

counterfactual analysis.102

54. The United States also argues that the evidence in Annex I to the EU Appellant

Submission does not support a finding that a non-subsidised Airbus could exist

and compete.103 Once again, this post hoc argument runs squarely into the US

arguments before the Panel, in which it “posit{ed} a situation where Airbus would

have entered at a much later stage with a different quality LCA offering”.104 The

US also “concede{d} that Boeing would, in the absence of LA/MSF, face some

competition”.105 Before the Panel, the United States therefore accepted “that at

least some competing planes would have been launched (by Airbus or some other

entity) over the period since Airbus launched its first LCA”.106 Similarly,

throughout these proceedings, Brazil, as a third party, agreed that an LCA

manufacturer can launch LCA without subsidies.107 The existence of such non-

subsidised competition required a counterfactual assessment of the impact on

Boeing’s sales and market shares.

55. The European Union is prepared to address each of the unfounded US factual

objections to the compilation of evidence included in Annex I to the EU Appellant

Submission. In the interest of time, however, we will only address one of them

here. The United States disputes that, absent the A300/A310, a non-subsidised

101 Panel Report, para. 7.1980. 102 EU Appellant Submission, paras. 393-582. 103 US Appellee Submission, paras. 635-639. 104 Panel Report, para. 7.1980. See also Panel Report, paras. 7.1868 (“in essence the United States argues that, in the absence of the challenged subsidies, Airbus would have fewer and different LCA models .... Drawing on this view, the United States posits a counterfactual in which the ‘U.S. LCA industry would produce and sell more aircraft at higher prices than it does in the face of subsidized competition’”), 7.1979 (“after reiterating its position that absent the subsidies Airbus would have fewer and different LCA products”). 105 Panel Report, para. 7.1910. 106 Panel Report, para. 7.1910. See also Panel, footnote 5585 (“In this respect the United States asserts ‘even if Airbus would have entered a particular LCA market segment at some other time with a different aircraft (in terms of technical capabilities, specifications, and other characteristics), the effect on the US LCA industry would have been different’. US SWS, para. 571”) 107 Third Participant First Oral Statement of Brazil, para. 4. See also Panel Report, para. 7.353 (footnote 2398).



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Airbus would be in a better financial position to launch a single-aisle aircraft.108

However, given the significant losses that the Airbus companies incurred from the

production – rather than partially MSF-financed development – of the A300/A310,

this is unquestionably the case. Had a non-subsidised Airbus launched a single-

aisle aircraft, without having first launched the A300/A310, the associated

manufacturers would have benefited more from their respective experience in

building regional jets. This experience could have limited the financial burden of

launching, as much of the actual A300/A310 losses can be attributed to learning

curve effects in the absence of sufficient wide-body LCA experience. As Annex I

details,109 while not representing the only reading of the evidence, the product

launches suggested therein, as well as their timing, are supported by the evidence.

The evidence detailed there also addresses the various barriers to entry, and spill-

over and learning effects across models that the United States highlights as

relevant.110

56. In sum, the US arguments do nothing to undermine the extensive arguments made

in the EU’s appeal that the evident gaps in the Panel’s erroneous causation

analysis led it to make excessive adverse effects findings. Under Article 7.8 of the

SCM Agreement, the European Union’s implementation obligations apply only to

the extent that a Panel has properly established that the alleged subsidies actually

caused the effects claimed. By finding that the alleged subsidies caused the four

single-aisle lost sales and the entirety of the displacement observed, the Panel’s

findings are too broad. With this appeal, the European Union, therefore, properly

seeks reversal and, hence, guidance from the Appellate Body on the extent of any

remaining findings.111

57. Finally, the European Union notes that the Appellate Body should reject a

causation standard that is satisfied by evidence and arguments that competition but

for the alleged subsidies at issue might look “different”. Such an approach to

Articles 5 and 6.3 would likely turn many subsidies into those that could be

108 US Appellee Submission, para. 636. 109 EU Appellant Submission, Annex I, paras. 8-72. 110 US Appellee Submission, para. 636. 111 EU Appellant Submission, paras. 410-412.



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deemed to cause adverse effects. Most subsidies will – to one degree or another –

affect their recipient’s behaviour, and hence result in “different” competition.112

But “different” competition does not automatically mean that the subsidies cause

another Member to stop securing significant sales or to face significantly lower

prices. The SCM Agreement does not prohibit “actionable” subsidies per se. It

only disciplines their use to the extent they actually cause specifically enumerated

effects.

VIII. LOST SALE – EMIRATES A380

58. The Panel also erred in finding that the Airbus A380 sale to Emirates Airlines in

2000 constitutes a significant lost sale to Boeing.113 The Panel’s finding114

presumes that, in the absence of the A380, Emirates would have ordered Boeing

LCA in the form of the 747X.

59. Neither the Panel nor the United States address the evidence that Emirates did not

consider ordering the 747X allegedly proposed by Boeing, and, in fact, did not

even review any 747X marketing material until after it had ordered the A380.115

There is no finding or evidence even suggesting that Emirates and Boeing were in

commercial discussions prior to the A380 order in 2000. Boeing cannot lose a

sales competition to which it did not show up, or for which it is late.

60. Instead, the United States raises new post hoc arguments, speculating that Emirates

might have purchased from Boeing “other competitive aircraft in production and

available for sale”.116 It is just as likely that, instead of buying new Boeing LCA,

Emirates may have leased additional aircraft, or purchased used aircraft, or

decided to limit its fleet and not order any aircraft because those on offer were

112 EU Appellant Submission, paras. 518-522. 113 EU Appellant Submission, paras. 583-598. 114 Panel Report, para. 7.1832. 115 EU Appellant Submission, para. 589. See also EU FWS, para. 1708; “Boeing and Emirates Correspond About 747X, 400X”, Reuters, 2 July 2000 (exhibit EC-368). 116 US Appellee Submission, para. 647. See also US Appellee Submission, paras. 640, 642.



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inadequate, given the business case it had built around a large number of very

large aircraft.117

61. The United States tries to justify the Panel’s presumption by pointing to an alleged

“purchase” by Emirates of 777s to obtain “the bloody seats” it needed, when A380

deliveries were delayed in 2006.118 Instead of purchasing 777s from Boeing in

2006,119 Emirates, in fact, leased 777s from a leasing company to fill the capacity

shortfall caused by the A380 delivery delays.120 Emirates also explained at the

time that the Boeing 747, which is even larger than the 777, did not represent a

“meaningful substitute” for the A380.121 If the 747 was too small for Emirates’

business model build around the much larger A380, then the even smaller 777s

could hardly permit the conclusion that Emirates would have purchased Boeing

LCA.

IX. CAUSATION – A380 LAUNCH

62. The European Union also appeals the Panel’s erroneous causation finding122 that

the alleged subsidies caused Boeing to lose sales when Emirates, Singapore

Airlines and Qantas ordered the A380.123 That causation finding depends on the

Panel’s finding that a non-subsidised Airbus could not have launched the A380 – a

finding that, for a number of reasons, is inconsistent with Articles 5 and 6.3(c) of

the SCM Agreement and Article 11 of the DSU.

117 See Expert Statement, Rod Muddle, paras. 19-26 (exhibit EC-19) (leasing companies “offer leased LCA to airlines that may not desire to purchase LCA. This creates an additional source of supply for airlines that is (i) alternative to be purchased directly from one of the two manufacturers and (ii) the purchase of used LCA from other airlines” (para. 20)). Expert Statement, Christian Scherer, para. 81 (“At times, the potential customer also decides not to purchase new aircraft after all, and may even decide to order used aircraft, and the sales campaign ends without an Airbus or Boeing sale”) (exhibit EC-14) (BCI). 118 US Appellee Submission, paras. 643, 645. 119 Airclaims CASE database, data query as of 19 January 2007, p. 60 (exhibit EC-21). 120 Singapore Airlines may buy more Boeing 777s, Int’l Herald Tribune (Dec. 10, 2006), p. 1 (“Emirates, Airbus's biggest A380 customer, said in October that it planned to lease at least five additional 777s to help compensate for the shortfall in capacity caused by A380 delivery delays”) (exhibit US-611). 121 “A380 Crisis, Can Boeing Exploit A380 Delays”, Flight International, 10 October 2006, p. 1 (exhibit EC-399). 122 Panel Report, paras. 7.1947-7.1949, 7.1993, 7.2025 and 8.2(d). 123 EU Appellant Submission, paras. 599-629.



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63. First, Airbus’ A380 business case demonstrated that it would be economically

viable absent MSF.124 The Panel, however, sidestepped that fact by finding it

unreliable because, allegedly, the company had “an economic incentive to be

optimistic in its forecast” of A380 deliveries.125 In making this finding, the Panel

improperly supported its proposition by relying on ex post evidence of actual

delays in A380 deliveries due technical problems.126 While in its Appellee

Submission, the United States does not respond to this point, in the context of the

A330-200 delivery forecast, the United States agreed that ex post data is irrelevant

to assess the ex ante validity of a delivery forecast.127

64. The United States also points to an inference drawn by the Panel that a worst case

scenario in the A380 business case might result in returns below the hurdle rate.128

Even if that were true, it would be irrelevant. For a business case to be viable, its

base case must exceed the hurdle rate. The assessment of a worst case scenario is

intended to consider possible losses under reasonably unfavourable conditions, to

determine whether those conditions and losses, were they unfortunately to come to

fruition, would be acceptable, even if obviously not desirable.

65. Yet, the most fundamental error with this “incentive to be optimistic” finding is

that the Panel assumes, without any evidence, that Airbus essentially misled its

shareholders and risk-sharing partners by overly optimistically launching a project

that Airbus itself did not believe was viable.129 The only US response is the

assertion that “the Panel set out a thoughtful and reasoned basis for its

observation”.130 Tellingly absent from the US argument is a footnote to that

124 Panel Report, para. 7.1943. 125 Panel Report, para. 7.1926. See also Panel Report, paras. 7.412-7.414, 7.1926-7.1927, 7.1944. 126 Panel Report, para. 7.1927 (referring to “the actual delays in ramping up production, and relatively limited sales and deliveries to date). See also EU Appellant Submission, para. 605. 127 US Comments on EU Closing Memorandum, para. 30. 128 US Appellee Submission, para. 652. 129 EU Appellant Submission, paras. 606-612. 130 US Appellee Submission, para. 653.



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“thoughtful and reasoned basis”. In fact, there could be none, because there is

neither an evidentiary nor a logical basis for the Panel’s finding.131

66. Second, the Panel also erred in finding that a non-subsidised Airbus would not

have been able to finance the A380.132 Although, in its Appellee Submission,133

the United States defends the Panel’s faulty finding that EADS’ financial situation

had not improved compared to Aérospatiale’s in 1997,134 in its Responses to

Questions from the Appellate Body, the United States now accepts that the

formation of EADS and its initial public offering “bolstered the capital position” of

the company.135

67. Responding to the EU’s argument regarding the Panel’s failure to take account of

significant funds available at EADS and BAE Systems to finance the A380,136 the

United States points to nothing but a UK government statement that its funds were

necessary for the launch of the A380. The Panel itself, however, cautioned against

the reliability of that evidence given the government’s interest in defending its

investments.137 The United States leaves unrebutted the fact that EADS and BAE

Systems had sufficient cash on their balance sheets to enable them to replace MSF

loans.

68. Moreover, the European Union had pointed to risk-sharing supplier financing as an

additional or alternative source of funds to replace MSF loans, which the Panel

erred in rejecting.138 Again, rather than addressing the substance of the EU’s

appeal, the United States makes the unsupported assertion that there is no basis for

disturbing the Panel’s factual findings.139 Yet, the evidence – un-rebutted by the

131 US Appellee Submission, para. 653. 132 EU Appellant Submission, paras. 614-617. 133 US Appellee Submission, para. 655. 134 Panel Report, para. 7.1947. 135 US Responses to First and Second Set of Factual Questions, para. 23. 136 EU Appellant Submission, paras. 615-617. 137 Panel Report, para. 7.1919 (“Having committed public monies, it is also possible that public officials would be included to describe government participation in Airbus projects as essential”). 138 EU Appellant Submission, paras. 618-621. 139 US Appellee Submission, para. 657.



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United States – demonstrated that risk-sharing suppliers funded approximately 60

percent of Boeing’s similarly risky 787.140 The Panel failed to explain why that

was not evidence that risk-sharing suppliers would, at a minimum, have been

willing to replace a significant portion of MSF loans, given that they accounted for

significantly less of the development costs on the A380 than the 787.141

69. Thus, the Panel erred in impugning the Airbus business case as fraudulent, and by

improperly failing to take into account sources of funds available to Airbus to

replace MSF loans and launch the A380 in 2000.

70. The United States argues that all of these errors by the Panel are irrelevant,

because the Panel found that, absent MSF for all of Airbus’ previous projects, the

company would have been too heavily indebted (and would have lacked the

technological capabilities) to launch the A380.142

71. This is of course the third finding that the European Union appeals.143 The Panel

erred by applying the wrong counterfactual. Having adopted a counterfactual that

implies a non-subsidised Airbus that launched fewer aircraft at a later point in

time, the Panel could not attribute to Airbus alleged debt relating to all of its actual

projects – i.e., including those projects that, under the Panel’s own counterfactual,

Airbus would not have undertaken.144 Similarly, the Panel could not find that,

having launched later and, possibly more modern, LCA, a non-subsidised Airbus

lacked technological experience because it did not launch the precise aircraft it

actually launched. This improperly mixes counterfactual and reality. As with the

Panel’s other causation findings discussed a moment ago, the Panel had to

construct a proper counterfactual and assess the ability of a non-subsidised Airbus

to launch fewer and different LCA at a later time, and the impact of those launches

on its ability to finance and develop the A380. In Annex I to its Appellant

Submission, the European Union set out one such counterfactual that is consistent

140 Deutsche Bank Analyst Report, p. 9 (exhibit EC-76). 141 See EU Appellant Submission, paras. 618-621. 142 US Appellee Submission, para. 658. 143 EU Appellant Submission, para. 622-626. 144 EU Appellant Submission, para. 622-624.



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with the launch of the A380 by a non-subsidised Airbus in 2000. The Panel’s

failure to make that assessment, at a minimum, results in incoherent and

inconsistent reasoning that amounts to a violation of Article 11 of the DSU.

72. In sum, the United States has done nothing to undermine the European Union’s

request that the Appellate Body reverse the Panel’s findings that a non-subsidised

Airbus could not have launched the A380 and that, therefore, Boeing would have

won sales of 747X aircraft to Emirates, Singapore Airlines and Qantas.

X. NON-MSF CAUSATION

73. The European Union has demonstrated that the Panel erred under Articles 5(c) and

6.3 of the SCM Agreement by failing to conduct a proper causation analysis with

respect to the non-MSF measures.145 The Panel established causation based on an

erroneous legal standard, focusing on the limited question of whether the varied set

of non-MSF measures “complemented and supplemented” the effects of the MSF

measures (which it found to cause adverse effects).146 In doing so, the Panel failed

to assess whether these subsidies actually “cause{d}” the alleged effects, and

neglected to adequately consider the nature of those non-MSF subsidies. The

Panel’s novel theory of “causation by association” is contrary to the requirements

of the SCM Agreement, as interpreted and applied by previous panels and the

Appellate Body. The Panel also failed to provide a reasoned and adequate

explanation for its findings.147

74. Contrary to the US argument, the European Union is not attempting to “relitigate

the Panel’s factual findings regarding the relationship of the subsidies at issue and

Airbus’ product development”.148 To be clear, our point is that the Panel failed to

make the findings that could enable it to conclude that the non-MSF subsidies were

of such a nature that it was reasonable to aggregate them with the MSF subsidies

for purposes of finding causation under the Panel’s “product launch” theory. The

Panel apparently did not see a need to make these findings, because it adopted a

145 EU Appellant Submission, paras. 630-660. 146 Panel Report, para. 7.1956. 147 EU Appellant Submission, paras. 661-664. 148 US Appellee Submission, para. 665.



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flawed interpretation of the standard for “causation” required by Article 5(c) and

6.3 of the SCM Agreement. In particular, the Panel found that when one subsidy

(or group of subsidies) merely “complements” and “supplements” a different

subsidy (or group), only one of those subsidies or groups must be demonstrated to

cause the alleged adverse effects.

75. The Panel’s error was particularly egregious in this situation. Recall that the Panel

adopted and applied the “product-launch” theory of causation advanced by the

United States. By its nature, this theory requires a causal link between the subsidy

and the launch of a product. Thus, although the United States now complains that

this requirement “is too high” for non-MSF measures,149 it fails to acknowledge

that this is a difficulty flowing from its own causation theory. And while the

Panel’s erroneous analysis demonstrates its view that this causation theory may

have eased the first step in the US burden to demonstrate adverse effects for MSF

(given the nature of those measures), the United States can not avoid the

difficulties of demonstrating the same “product launch” effect for the varied non-

MSF measures that are of a very different nature from MSF measures, and from

one another.

76. As the European Union established,150 under Articles 5 and 6.3 of the SCM

Agreement, as well as Article 11 of the DSU, a proper evaluation of the nature of

each of the fourteen different sets of non-MSF measures151 would have required far

more than the three cursory paragraphs in the report justifying the Panel’s

finding.152 The required systematic review of the nature of the fourteen sets of

non-MSF measures153 would have revealed to the Panel that the product launch

theory was not conducive to a finding of causation for each of those measures.

77. For example, as the European Union explained, there is no reason to believe that

the transfer of minority ownership in Dassault, from the French State to

149 US Appellee Submission, para. 672. 150 EU Appellant Submission, paras. 638-660. 151 Panel Report, para. 8.1. 152 Panel Report, paras. 7.1957 – 7.1958. 153 See Panel Report, para. 8.1(b)-(e), listing the non-MSF measures found to be subsidies.



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Aérospatiale, had any impact whatsoever on Airbus product launch decisions.154

The same is true for the transfer of equity from KfW to MBB, particularly since

MBB was not even a producer of Airbus LCA.155 With respect to infrastructure,

the Panel appears to have reversed the relevant test for causation, by focusing on

whether the infrastructure would exist but for the product launch.156 As for the

multiple R&TD measures, the Panel’s causation analysis did not even consider

whether each of the R&TD measures advanced the development of technologies

that were significant for the launch of any Airbus LCA, let alone necessary to their

launch.157 How, then, can any of these non-MSF measures be considered to be of

the same “nature” as the MSF measures, or also to cause the alleged product

launch that the Panel found MSF loans were already necessary and sufficient to

cause?

78. The US Appellee Submission also reveals that it has no answer to the EU’s

critique that the Panel did not even mention the majority of the individual non-

MSF measures at issue in its causation analysis, or that the Panel did not analyse

their individual nature or impact on launch decisions. Instead, following in the

footsteps of the Panel, the US Appellee Submission simply repeats the unsupported

assertions made by the Panel.158

79. The US argument implies that focusing on the nature and specific characteristics of

just one of those fourteen different sets of non-MSF measures could somehow

substitute for a systematic analysis of each of the fourteen. Specifically, the only

set of non-MSF measures that the United States appears to be comfortable

defending as having the same nature as MSF measures, under the Panel’s product-

launch theory, are the four capital contributions by the French State to

Aérospatiale.159 In presenting its arguments regarding the nature of this set of

154 EU Appellant Submission, para. 653. 155 EU Appellant Submission, para. 654. 156 EU Appellant Submission, para. 657, noting the Panel’s finding at paragraph 7.1177 that the infrastructure “was undertaken specifically to enable Airbus to situate an A380 assembly line in an advantageous location in France”. 157 See EU Appellant Submission, para. 659. 158 US Appellee Submission, para. 668. 159 US Appellee Submission, paras. 668 (first bullet point) and 669-670.



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measures, the US performs a type of analysis that (i) the Panel did not perform for

any of the non-MSF measures at issue; and (ii) the US does not perform for the

remaining 13 sets of non-MSF measures. This helps to highlight the deficiencies

in the Panel’s causation analysis.

80. As the European Union explained, and as the Appellate Body affirmed, the US –

Upland Cotton panel properly considered the nature of each of the subsidies in

question in determining the existence of a causal link.160 While the panel found

that the price-contingent subsidies caused price suppression,161 it also found that

the non-price-contingent subsidies were of a different nature, and declined to

aggregate them and their effects with the price-contingent subsidies.162 Indeed, the

panel did so despite the fact that the non-price-contingent subsidies will have

“complemented and supplemented” the effects of the price-contingent subsidies.

When the United States addresses US – Upland Cotton, it completely ignores the

aspect of the report in which the panel declined to aggregate subsidies of a

different nature, and the resulting implications that the European Union has

explained arise for this dispute.163

81. Finally, we recall that endorsing the Panel’s standard would result in no limits on

the types of subsidy measures that could be aggregated with a measure (or group of

measures) that has been found to cause adverse effects. All that would be required

is that those other measures, regardless of their nature, benefit the same recipient.

Under this standard, any subsidy, regardless of how small and in what form

“complements” and “supplements” another subsidy to the same recipient. This can

not be the correct reading of Articles 5 and 6.3 of the SCM Agreement, as it would

effectively read out the causation requirement for those additional subsidies. If the

drafters had intended to allow for a causation finding on this basis – i.e., through a

type of irrebutable presumption that subsidies associated with other subsidies

found to cause adverse effects must also be found to cause adverse effects when

160 Panel Report, US – Upland Cotton, para. 7.1349-50; Appellate Body Report, US – Upland Cotton, para. 450. 161 Panel Report, US – Upland Cotton, para. 7.1349. 162 Panel Report, US – Upland Cotton, para. 7.1350. 163 US Appellee Submission, para. 665; EU Appellant Submission, para. 643.



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they are provided to the same (or even related) beneficiaries – they would have

indicated as much in the text of Part III. Instead, Part III allows subsidies unless

they can be demonstrated to cause a specific form of adverse effects. The Panel’s

analysis inappropriately expands the disciplines of Part III of the SCM Agreement

far beyond the intended scope. Thus, the Appellate Body should reverse the

findings that the non-MSF measures cause adverse effects.

XI. MSF BENEFIT

82. Let me also briefly address a point on benchmarks for MSF loans. In its

comments on our Closing Memorandum, the United States attempts to justify its

Ellis benchmark by arguing that the Dorman discount rate is biased downward

because it includes not only the cost of equity, but also lower cost debt

financing.164 This is a curious objection, given the US’ repeated insistence that

MSF has debt and equity characteristics that are reflected in Dr. Ellis’ so-called

hybrid benchmark.165 Presumably, therefore, the inclusion of debt and equity in

Dr. Dorman’s benchmark would make that benchmark more, not less, comparable

to MSF.

XII. FRENCH CAPITAL CONTRIBUTIONS

83. Finally, we noted a typographical error in our First Opening Statement. Footnotes

201 and 206 inadvertently refers to exhibit EC-53 (HSBI) when it should have

referred to exhibit EC-544 (HSBI). We apologise for any inconvenience caused.

XIII. CONCLUSION

84. This concludes our opening statement. We look forward to responding to your

questions.

164 US Comments on EU Closing Memorandum, paras. 17, 19-20. 165 US FNCOS, para 44; US Responses to First Set of Questions, paras. 62- 64; US SWS paras. 82-86; US SNCOS, para. 55; US Responses to Second Set of Questions, para 234; US Comments on EC Responses to Second Set of Questions, para 10.

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