	Introduction

The U.S. auto industry is of interest to many in Congress because of its large employment, economic impact, and geographic reach. Around the world, there are many automakers and thousands of parts suppliers, leading to intense international competition. For example, the emergence of Japan's auto industry as a major global competitor in the 1980s and 1990s led to frequent conflict with the United States, as many U.S. policymakers argued that Japan's trade policies harmed U.S. domestic auto and auto parts producers at home and abroad. The rapid rise of China's auto and auto parts industries in recent years has raised similar concerns and led to questions about some of the trade practices employed by the Chinese government. Some in Congress have called on the Obama Administration to take a tougher stand against China's industrial policies and other measures that may be distorting trade, including by making greater use of the World Trade Organization (WTO) dispute settlement process to challenge Chinese policies that may violate WTO rules. This report examines the rise of China's auto and auto parts industries, Chinese government policies to promote these industries, trends in U.S.-China trade in autos and parts, auto-related trade disputes, and implications for U.S.-China commercial relations. It has been forecast that as many as 30 million vehicles will be sold annually in China by 2020, with most of them being produced there. Foreign automakers were allowed to produce vehicles in China, but only through joint ventures in which local partners have at least 50% control. GM now sells more cars in China than in the United States. Ford Motor Co. is a more recent entrant, and has about 3% of the market. In 2012, China was the third largest export market (after Canada and Germany) for U.S. automotive vehicles at $5.7 billion (180,265 units). In the first six months of 2013, China was second-largest export market for U.S. vehicles, behind Canada. According to U.S. government data, about 25% of China's auto parts production is exported, including to the United States, where more than $14 billion in parts from China were imported in 2012, a 60% increase since 2008. China is also a major importer of auto parts. In its 12 th Five-Year Plan (2011-2015), China laid out three major steps to further build up the auto assembly and parts industry:
consolidation of the currently fragmented industry , which would reduce the number of auto making and auto parts firms and, in so doing, could create economies of scale, reduce manufacturing costs, and raise the industry's international competitiveness; emphasis on bolstering research and development for key auto parts , which could enhance Chinese-owned firms' innovation and productivity and help raise the quality of Chinese-made vehicles and parts; and incentives fo r production and sale of energy- saving vehicles , which could help reduce dependence on imported oil, cut emissions, and usher in a significant rise in technological knowledge that would benefit the indigenous vehicle sector. U.S.-China Trade Disputes over Vehicles and Parts

Autos and auto parts have been the subject of a number of trade disputes between the United States and China. The United States further contended that the policy not only discouraged auto firms in China from importing auto parts, but also put significant pressure on foreign auto parts producers to relocate manufacturing facilities to China. The United States has charged that China maintains an auto and auto parts "export base" subsidy program estimated to have totaled at least $1 billion from 2009-2011. At the 2011 U.S.-China Joint Commission on Commerce and Trade (November 20-21, 2011), China
confirmed that "it does not and will not maintain measures that mandate the transfer of technology"; clarified that "mastery of core technology" does not require technology transfer for NEVs; confirmed that the establishment of brands is a corporate decision and that the Chinese government does not and will not impose any requirements for foreign-invested companies to establish domestic brands in China; confirmed that foreign-invested enterprises are eligible on an equal basis for subsidies or other preferential policies for NEVs with Chinese enterprises, and that these subsidies and preference programs will be implemented in a manner consistent with WTO rules; and that China affirmed that as it develops possible future NEV support programs, the views of all stakeholders will be considered, including the comments and opinions of the United States. Parts makers, on the other hand, are permitted to own a majority share of operations in China.
The U.S. auto industry employs nearly 800,000 workers and is a major employer in certain parts of the country. International competition is fierce, with many automakers and thousands of parts makers vying for market share. Because of the industry's importance to the U.S. economy, the rapid rise of China's auto assembly and auto parts industries in recent years has raised concerns among some Members of Congress.
In 2009, China overtook the United States to become both the world's largest producer of and market for motor vehicles. In 2012, assemblers in China sold 19 million vehicles, and forecasts project more than 30 million vehicles will be sold there in 2020. China's increasing importance in this industry presents a unique set of opportunities and challenges for the United States. On the one hand, China is in some respects a relatively open market; it was the third -largest export market for U.S. autos and auto parts in the first six months of 2013 at $5.1 billion ($4.2 billion for autos and $ 0.9billion for auto parts), and has welcomed foreign direct investment by U.S.-based auto and auto parts manufacturers. Every year since 2010, General Motors has sold more cars in China (through exports and its joint ventures there) than in the United States.
On the other hand, China maintains a number of trade and investment barriers that affect trade flows in autos and auto parts. Foreign automakers can produce autos in China only through 50/50 joint ventures with Chinese partners. In addition, U.S. and other foreign auto firms have reportedly faced pressures relating to transfer of technology, export performance, and domestic content requirements, even though China's commitments in the World Trade Organization (WTO) prohibit the Chinese government from enforcing such policies on foreign firms. Although the United States imports few vehicles from China, China has become the fourth-largest source of U.S. auto parts imports, with shipments totaling $14.5 billion in 2012.
The Chinese government has made the development of its auto and auto parts industries, including "new energy vehicles," a major economic priority, and has implemented a number of industrial policies to promote and protect Chinese auto firms with the long-term goal of making them globally competitive. As a result, auto and auto parts trade has become a source of conflict between the United States and China, most recently in 2012, when the Obama Administration asked the World Trade Organization (WTO) to consider whether alleged Chinese subsidies of auto and auto parts manufacturers violate international rules.
China's demand for motor vehicles is likely to continue growing rapidly because its population of 1.3 billion is just beginning to have the financial resources to purchase automobiles. For the United States, this will mean many new opportunities and challenges. Unlike some other markets, such as Korea, China's large internal demand may well shape the industry for many years, with exporting a secondary interest. China's rising investments in U.S. parts makers such as Nexteer and B456 Systems may help develop a U.S. technology lead in fuel-efficient, low-emission vehicles. But the prevalence of state and municipal ownership of many Chinese auto and auto parts companies may also cause friction. Many in Congress have called on the Obama Administration to take a tougher stand against China's industrial policies that may favor Chinese automakers over foreign automakers.