There is no clear, universally accepted definition of social dumping. The European Commission describes the practice as a situation ‘where foreign service providers can undercut local service providers because their labour standards are lower’. It gives its definition in relation to descriptions of the posting of workers.
From an academic standpoint, another definition is offered in a 1998 Centre for Economic Policy Research (CEPR) discussion paper, ‘Social dumping and relocation: Is there a case for imposing a social clause?’ in which the authors define social dumping as the decision of a business in a developed country to:
supply its domestic market through production located in a developing economy where labour standards do not comply with the minimum requirements adopted by the home country, therefore allowing the firm to enjoy lower production costs.
Daniel Vaughan-Whitehead also looked at the subject in his 2003 report, EU enlargement versus social Europe? The uncertain future of the European social model. In it, he distinguishes between a narrow definition of social dumping, limited to respecting or failing to respect the law, and a more general definition based on the notion of ‘unfair competition’.
Social dumping is a hotly debated issue in European circles, and the term itself has negative connotations, hinting at the exploitation of workers.
There are inevitably differences between Member States in terms of labour costs, both direct and indirect. These can give companies based in countries with comparatively lower costs a competitive advantage. However, this advantage may be offset by factors which favour enterprises in countries with higher labour and social standards. These factors may include better transport infrastructures or a more highly trained and skilled workforce. Nevertheless, differences in direct and indirect labour costs may create a significant competitive edge.
Trade unions argue that one of the consequences of such differences is that they raise the threat of social dumping. They fear that as a result of what has been called ‘social policy regime competition’ between Member States, national governments will be under pressure to reduce their labour and social standards in order to ease the burden of high indirect wage costs on enterprises. This could mean businesses – particularly multinational enterprises – will be tempted to locate new investment, or even to relocate existing establishments, in countries where lower labour and social standards lead to lower indirect labour costs.
In recent years, a number of cases in the European Court of Justice (ECJ) have dealt with issues related to social dumping and the interaction between industrial relations rights and the freedom to provide services.
During 2007 and 2008, the ECJ’s rulings on the Viking case, Laval case and Rüffert case imposed limitations on attempts to use collective bargaining and the right to strike as measures to combat social dumping.
In the Viking and Laval cases, the ECJ ruled that although the right to industrial action constitutes a restriction of the freedom to provide cross-border services, it can be justified under certain circumstances.
In the Viking case, this justification is linked to an overriding reason of public interest, such as the protection of workers. Furthermore, the type of collective action must be suitable to ensuring the attainment of the legitimate objective pursued, and should not go further than what is necessary to achieve that objective.
In the Laval case, the ECJ ruled that industrial action is in breach of the freedom to provide services if it is aimed at imposing terms and conditions on foreign undertakings which go beyond the minimum established by national law. Similarly, in the Rüffert case, the ECJ ruling restricts the scope of social clauses in public procurement contracts to labour standards established by law or universally applicable collective agreements. In both cases, the ECJ refers to Directive 96/71 on posted workers.
According to Article 3 of the directive, only terms and conditions established by law, or by universally accepted collective agreements, apply to posted workers.