Imports of the food additive monosodium glutamate (MSG) from China and Indonesia are likely harming the U.S. market, the U.S. International Trade Commission (USITC) found in November following a preliminary investigation.
The tentative decision was encouraging news for America's sole manufacturer of MSG, Ajinomoto North America, Inc., whose parent company is said to have discovered and patented MSG in Japan in 1909.
In a preliminary determination, the USITC ruled the "subject imports had a significant adverse impact on the domestic industry", with Ajinomoto's profits deteriorating into losses at the end of an investigation period.
The U.S. Department of Commerce (DOC) is investigating whether the Chinese and Indonesian governments are subsidizing exporters and whether the foreign companies are selling MSG in the United States at less than "fair value." Affirmative, preliminary findings by the DOC would lead to the imposition of "antidumping and counterveiling duties" on the subject imports, theoretically leveling the playing field between Ajinomoto and its Chinese and Indonesian rivals.
Ajinomoto North America competes for the MSG business of large-scale food processors with the likes of P.T. Cheil Jedang (CJ) Indonesia and such Chinese companies as Fufeng Group Ltd. and Meihua Holdings Group Co. Ltd.
According to the DOC, imports of MSG from China totaled an estimated $36.9 million in 2012, while imports from Indonesia were valued at $5.7 million.
Ajinomoto contends that competitors' cutthroat pricing has squeezed profits and eaten into sales. Imports of MSG from China and Indonesia skyrocketed 139% from 2010 to 2012, according to the company. The food additive is mainly used as a flavor enhancer in meats, fish and other products.
Although Ajinomoto acknowledged that Brazil and a number of other countries produce MSG that is imported into the United States, most shipments come from China and Indonesia. From 2010 to 2012, the merchandise share of U.S. consumption from those two countries alone climbed from a modest 18% to 46%, according to a Sept. 16 petition Ajinomoto filed with the USITC, a quasi-judicial federal agency. Meanwhile, Ajinomoto revealed its share has plummeted from 87% in 2010 to 45% in the first half of 2013.
Ajinomoto warned it faced "the prospect of large-scale capacity shutdowns and production reductions." The company has been producing MSG at its factory in Eddyville, Iowa, for more than 20 years.
"The prices of the subject imports have remained unfairly low, underselling the domestic industry's shipments to the U.S. market, despite increases in raw material costs, especially for dextrose sources that are the key material input in the production process," Ajinomoto wrote in the petition. "The price-distorted environment of unfairly-priced imports has left the domestic industry struggling with a classic cost-price squeeze."
There are more than 15 MSG producers in China, although Fufeng Group Ltd. and Meihua Holdings Group Ltd. are said to account for most of the production. Ajinomoto identified P.T. Cheil Jedang Indonesia as the sole producer in Indonesia.
According to Ajinomoto's petition, raw material costs have risen by 77% since the third quarter of 2010. But China and Indonesia continue to keep prices too low, Ajinomoto complained.
The petitions filed by Ajinomoto initially drew very little public input at the USITC. But there was little time for comments between the filing of the petition and the USITC's initial determination in November. Chinese producers of MSG remained silent on the complaint before the USITC. According to the agency, none of the 10 firms to which the USITC sent questions responded. However, three producers in Indonesia filed responses to the USITC's questionnaires.
Only one company, Griffith Laboratories U.S.A., Inc., a seasoning company specializing in functional ingredients, submitted written arguments to the USITC. Griffith no longer relies solely on Ajinomoto as its MSG producer, having entered into a contract with another company in 2012.
"Griffith is concerned that Ajinomoto may be using the antidumping and countervailing duty investigations to eliminate what little competition exists in the United States MSG market and reinforce its dominion over U.S. sales of the product, causing U.S. businesses to pay higher prices for MSG than Ajinomoto itself charges outside of the United States," Griffith stated.
According to Griffith, when prices of corn have gone up, Ajinomoto has raised prices. But Ajinomoto has failed to lower prices for MSG when corn prices have fallen.
"Ajinomoto also has failed to note the substantial increase in volume of MSG that is being imported from its affiliated company in Brazil," Griffith wrote. "By Ajinomoto's own data … the increase in volume of MSG imported from Brazil has substantially outpaced the volume imported from Indonesia. The difference here is that the imports from Brazil appear to consist primarily—if not solely—of MSG produced by an Ajinomoto entity."
Ajinomoto didn't return phone calls seeking comment on its petitions.
According to the USITC, Brazil was the biggest source of imports other than China and Indonesia during the period of its investigation. The country comprised 79% of nonsubject imports during 2012. Peru, South Korea, Taiwan, Thailand and Vietnam also import MSG into the United States, according to Ajinomoto.
Ajinomoto has found success with similar grievances before European regulators. According to the company, the European Union imposed an antidumping duty that remains in effect after Ajinomoto's European affiliate complained about MSG imports from China.
European antidumping petitions filed by Ajinomoto dating back to 1986 have led to high prices for MSG, according to CJ America, which is wholly owned by Cheil Jedang Korea. P.T. CJ Indonesia competes with Ajinomoto for MSG business in the United States.
"By filing the petition for anti-dumping in September, Ajinomoto is trying to prevent MSG produced in other parts of Asia from coming into Europe and the U.S. markets, potentially for another decade," CJ America argued in a statement that was circulated to colleagues and professionals in the manufacturing industry. "Considering Ajinomoto North America will be the only producer for MSG within the region, there is no question that it will monopolize the market."
CJ America contends Ajinomoto won't be able to meet U.S. demand if its request for tariffs is granted and will seek to capitalize on its Brazilian affiliate operation to boost MSG shipments bound for the United States.
"It seems like the company’s goal lies in maintaining its monopoly position through taking advantage of intergovernmental trade and legal system, rather than fairly competing through further technological improvement or enhancing one’s core competencies to better serve our customers, our colleagues and professionals in the United States food manufacturing industry," CJ America wrote.
The DOC is scheduled to announce its preliminary counterveiling determination on March 4, with the preliminary antidumping determination slated for March 13.
Ajinomoto alleges Chinese companies are selling MSG in the United States at "dumping margins" of between 64.77% and 204.69% while products hailing from Indonesia have margins of between 50.32% and 58.67%. Such margins reflect the extent to which products are being sold in the United States at less than their value in China and Indonesia.
If the DOC preliminarily determines that products are being dumped at less than their fair value, it will instruct U.S. Customs and Border Protection to collect cash deposits or bonds to reflect the dumping margins. If and once the DOC's preliminary determination is published in the Federal Register, the rates will take effect.
Final decisions from the DOC and USITC are anticipated later in 2014.
