Financial Contribution – Revenue Foregone

801. We next turn to the United States' appeal of the Panel's finding that the reduction in the Washington State B&O tax rate applicable to commercial aircraft and component manufacturers under Washington State House Bill 2294 constitutes a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement. In subsection 1, we set out a summary of the Panel's findings. In subsection 2, we consider the circumstances in which government revenue otherwise due is foregone within the meaning of Article 1.1(a)(1)(ii). Finally, in subsection 3, we assess the United States' claim on appeal.

1. The Panel's Findings

802. The Panel reviewed the Appellate Body's reasoning in US – FSC and US – FSC (Article 21.5 – EC) concerning the administration of tax and the foregoing of government revenue that is otherwise due within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement. The test applied by the panel in US – FSC involved “examining the situation that would have existed but for the measure in question and determining whether there would have been a higher tax liability in the absence of the measure”. The Panel observed that the Appellate Body in that dispute expressed some reservations about whether the “but for” test is an appropriate general test that should apply in all situations.