VIII - CONCLUSIONS AND RECOMMENDATION

Summary

Conclusions

8.1 We recall that in this dispute, the claims of the European Communities with respect to the challenged measures fall into two categories. First, the European Communities claims that two of the alleged subsidies, namely the tax breaks provided by the U.S. Federal Government pursuant to legislation concerning foreign sales corporations and exclusion of extraterritorial income and the tax incentives provided by the State of Washington under the legislation adopted in 2003, are prohibited under Articles 3.1(a) and 3.2 of the SCM Agreement. Second, the European Communities claims that all of the alleged subsidies are actionable under the SCM Agreement and that by using these subsidies the United States causes adverse effects to the interests of the European Communities, in violation of Article 5(c) of the SCM Agreement.

8.2 With respect to the European Communities' prohibited subsidy claims under Articles 3.1(a) and 3.2 of the SCM Agreement, we conclude that:

(a) the FSC/ETI measures that have been challenged by the European Communities and that were in force at the time of the Panel's establishment are inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement;

(b) the European Communities has not demonstrated that the Washington State tax measures provided for in HB 2294 are inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.