Social dumping

Despite an increase in usage of the expression, there is still no clear, universally accepted definition of ‘social dumping’. Social dumping is a hotly debated issue in European circles, the term itself having negative connotations, hinting at the exploitation of workers.

On 14 August 2015, Marianne Thyssen, European Commissioner for Employment, Social Affairs, Skills and Labour Mobility, gave a written answer to a European Parliament question on definitions, in which she stated: ‘There is no definition of the concept of "social dumping" in EC law. The term is generally used to point to unfair competition due to the application of different wages and social protection rules to different categories of workers’ (Parliamentary questions, 27 May 2015, E-008441-15).

The use of the term in public discourse primarily refers to international, cross-border situations. Nevertheless, some key features of social dumping practices can also be found in domestic markets.

In the context of the ‘posting of workers’ discussion, the European Commission described the practice as a situation ‘where foreign service providers can undercut local service providers because their labour standards are lower’. From an academic standpoint, several definitions have been offered. For example, social dumping is seen in relation to the relocation of activities in order to gain some competitive advantage. In a 1998 discussion paper by the Centre for Economic Policy Research, it is defined 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’. André Sapir (2015) uses the definition of social dumping as ‘downward pressure on social conditions due to competition from countries with lower social conditions’.

Social dumping has also been presented by Magdalena Bernaciak (2014) as ‘the practice, undertaken by self-interested market participants, of undermining or evading existing social regulations with the aim of gaining competitive advantage’. Vaughan-Whitehead (2003) pointed out that a distinction could be drawn 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’.

There are, inevitably, differences between 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 that favour enterprises in countries with higher labour and social standards. These factors 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 to ease the burden of high indirect wage costs on enterprises. This could mean businesses – particularly multinational enterprises – being 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, Laval and Rüffert cases 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 court ruled that the type of collective action must be compatible with the attainment of the legitimate objective pursued and should not go further than 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 the Laval and the Rüffert cases, the ECJ refers to Directive 96/71 on the posting of workers, stressing that according to Article 3, ‘only terms and conditions established by law, or by universally accepted collective agreements, apply to posted workers’.

Several initiatives at European level, expected during 2016, will see renewed debate around social dumping. The European institutions have taken various steps on this issue.

In the context of the posting of workers, on 8 March 2016, the European Commission issued a proposal for a targeted revision of the Directive on the posting of workers (PDF) to better balance the protection of workers’ rights and the provision of cross-border services within the context of fair competition. The revisions focus on the remuneration of posted workers, including in situations of subcontracting, the regulation of temporary agency work, and the regulation of long-term postings. Accordingly, remuneration will include bonuses or allowances in addition to minimum rates of pay. Posted workers will also be covered by national rules on temporary agency work and, if the duration of a posting exceeds 24 months, the labour law of the hosting country will apply where favourable to the posted worker.

The European Commission informed the Employment and Social Affairs Ministers at the meeting of the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) about the labour mobility package announced in its 2016 work programme on 7 March 2016. At that stage, attention focused on the proposal for a targeted revision of the posting of workers directive, as the College of Commissioners were due to discuss and adopt the proposal on 8 March. The Dutch Presidency announced that this proposal would be covered by political discussions (PDF) on 19–20 April during the informal EPSCO Council meeting.

On 8 March 2016, the European Commission also proposed initial discussions on the topic to the European Parliament. This was met with mixed reactions by the parliament, according to a press release which stated, ‘the legislative proposal will be debated and scrutinised by Parliament and Council in following months before co-deciding on the final version to adopt’. Several social partners’ organisations also communicated their positions.

With a broader scope, in January 2016 the European Parliament started to debate a draft report on ‘Social dumping in the European Union’, (2015/2255(INI))in which it calls for a number of actions to curb social dumping, such as: reinforcing controls and coordination between EU Member States; addressing regulatory gaps in enforcing the principles of equal pay and equal social protection; combating social dumping for mobile workers in the transport industry; and promoting social convergence. At a first exchange of views of the draft report at the Employment and Social Committee of the European Parliament on 25 January 2016, MEPs requested a clear definition of social dumping.

Social dumping will also be under discussion in the context of undeclared work. The European Platform to tackle undeclared work, to be set up mid-2016, should address several related issues.

Finally, social partners’ organisations, including those in the construction, food industry and transport sectors, have also been developing initiatives in this field.

For example, in the construction sector, both sides of the industry – The European Federation of Building and Woodworkers (EFBWW) and the European Construction Industry Federation (FIEC) – in their Multiannual Action Programme for the Sectoral European social dialogue of the construction industry 2012–2015, ‘reconfirm their mutual will to deliver a responsible contribution to prevent and combat 'social fraud' and 'unfair competition', with the aim of ensuring non-discrimination and an equal transparent level playing field within the construction industry’. They also pledge to ‘continue to collaborate with the aim of combating any forms of unfair practices in order to ensure a level playing field for companies and decent working conditions for workers’. During 2015 and 2016, the EFBWW launched several petitions and campaigns against ‘social dumping and workers exploitation’ and letter box companies.

In the food industry, representatives from the Food, Drink and Tobacco (FDT) sector of the European Federation of Food, Agriculture and Tourism Trade Unions discussed, during their November 2015 General Assembly, the relationship between workers’ mobility and the very frequent phenomenon of social dumping in the food sector. FDT decided to launch a European-wide campaign against social dumping in the meat industry, after such practices were reported to be spreading particularly rapidly in this sector, alongside examples of abuses of migrant workers.

In the transport sector, the European Transport Workers’ Federation (ETF) is calling for a definition of social dumping as part of its 2016 campaign. The ETF has launched a ‘European citizens’ Initiative’ to promote fair transport and curb social dumping in the transport sector, improve working conditions and increase fair competition. It is aiming to collect at least one million signatures to request action at EU level on these issues.

See also: Economic and Monetary Union; European social model; Harmonisation; Posted workers.

References

Vaughan-Whitehead, D. (2003), EU Enlargement Versus Social Europe?: The Uncertain Future of the European Social Model, Edward Elgar Publications, Cheltenham.