The European Commission has launched an inquiry into allegations that Chinese suppliers are dumping citric acid onto the market and causing material injury to the European industry.
Citric acid suppliers in Europe have increasingly found themselves under the squeeze by lower-price Chinese companies entering the market, as well as rising raw material costs.
But according to the European Chemical Industry Council (CEFIC), which lodged a complaint with the Commission at the end of July, the Chinese market entrants are not just presenting stiff competition. They are 'dumping' citric acid on the market - that is, charging less for material exported than for material sold on its domestic market, or selling for less than the cost of production.
CEFIC's complaint was made on behalf of an unnamed company that is said to produce in excess of 25 per cent of the European Community's citric acid. Twenty-five per cent of community industry is normally the threshold level at which an investigation will be considered.
"It is alleged that the volumes and prices of the imported product concerned have, among other consequences, had a negative impact on the level of prices charged by the Community industry, resulting in substantial adverse effects on the financial situation of the Community industry," said the Commission's notice of an inquiry published in the Official Journal of the European Union this week.
Prior to publishing the notice, the Commission consulted with its advisory committee on whether there is sufficient evidence to justify the investigation, which seeks to determine whether the product from China is being dumped, and whether this dumping has caused injury.
The upshot, should the allegations and injury be established, "a decision will be reached as to whether the adoption of anti-dumping measures would not be against Community interest".
If adopted, measures could involve the setting of a tariff, determined by the level of damage done to producers.
The European Commission is now requesting that exporters and producers in the People's Republic of China contact the Commission, so it can establish whether it needs to select a sample of the large number of companies allegedly involved to investigate.
The Community industry is also invited to submit questionnaires, which can be requested from the Commission until September 14. All interested parties can also apply to be heard by the Commission within the next 40 days.
The investigation is expected to be completed within 15 months.
The situation is particularly worrisome for Western citric acid producers in the current climate since, as new contracts are being negotiated, they are having to up their prices in a bid to meet rising costs.
As the price gulf widens, price sensitive customers may be more tempted that ever to plump for citric acid originating from the East.
Those who prefer the quality assurance and traceability that Western suppliers can assure may also have no choice but to look to China, as a spate of factory closures in an untenable competitive environment has raised fears that there could soon be a shortage of material produced in the West.
This scenario could be avoided, say suppliers, if users are prepared to absorb some of the extra costs.
Citric acid is a fermentation product, which means it can be made from a number of carbohydrate products including corn and sugar. But external pressures, such as changes to the EU sugar regime, lower acres due to bad weather, and of course growing competition for crops from the biofuel industry, have resulted in raw material shortages and consequently higher prices.
Citric acid currently dominates the category of organic acids. On the back of numerous applications for the ingredient, consumption is expected to grow strongly until 2009, with the market value exceeding $2 billion.