Introduction

7.1 In this dispute, the European Communities claims that the United States has acted, and continues to act, inconsistently with the SCM Agreement by providing prohibited or actionable subsidies to The Boeing Company and the McDonnell Douglas Corporation prior to its merger with Boeing (which the European Communities terms the “US LCA industry”). The European Communities argues that these subsidies have been provided or are being provided by the States of Washington, Kansas and Illinois and municipalities in those States and by the U.S. Government.

7.2 Regarding the State of Washington and municipalities therein, the European Communities challenges: (i) various tax rate reductions, tax credits and tax exemptions provided for in a law adopted by the State of Washington in June 2003 to retain and attract the aerospace industry to Washington State; (ii) tax rate reductions adopted by the City of Everett; and (iii) a series of tax- and non-tax incentives provided for in the Project Olympus Master Site Agreement, an agreement concluded between Boeing and the State of Washington and municipalities in December 2003.

7.3 Regarding the State of Kansas and municipalities therein, the European Communities challenges: (i) property and sales tax breaks provided by the City of Wichita to large civil aircraft component production facilities through the issuance of industrial revenue bonds; and (ii) interest payments by the State of Kansas on Kansas State Development Bonds, which the European Communities alleges will be used to facilitate production of a portion of the fuselage of the Boeing 787.