Group 3 LOW WAGE SOCIAL DUMPING PREPARED BY: Shams Baiani Hsin-Yun Chen Sreekrishna Gourneni Hemanth Jayaram Yu-Wen Kao Dhaval Shah Darshit Trivedi Prepared in the partial fulfillment for the requirement of course IMS 6204 – 556 GLOBAL BUSINESS Fall 2010 Dr. Habte Woldu September 14, 2010 ? DEFINITION What is Dumping? Dumping is generally used in the context of international trade law, where dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production. What is Social Dumping? Social dumping” is defined as a term (with a negative connotation) that is used to describe a temporary or transitory movement of labor, whereby employers use workers from one country or area in another country or area where the cost of labor is usually more expensive, thus saving money and potentially increasing profit. Social Dumping refers to an unfair advantage in international trade. It results from differences in direct and indirect labor costs, which constitute a significant competitive advantage for enterprises in one country, with possible negative consequences for social and labor standards in other countries. 6] TYPES OF SOCIAL DUMPING 1. Social Dumping a. Social dumping is the process whereby a transnational organization shifts production from a country with relatively high-employment costs to a country with lower costs. b. Examples of Social Dumping are Production of Shoes by Nike in the third world countries. 2. Product Dumping a. The act of a Manufacturer/firm in one country exporting a product to another country at a price which is either below the price it charges in its home markets or below its costs of production. b. Exporting Products that are considered illegal in one country to another country where it’s not illegal. . Examples for Product Dumping are Japanese Automobiles sold in United States, Baby Pacifiers exported by United States that cause choking problems. 3. Environmental Dumping a. Environmental dumping is the practice of Trans frontier shipment of waste (household waste, industrial/nuclear waste, etc. ) from one country to another. b. Examples Ship Dismantling in India. 4. Cultural Dumping a. Cultural Dumping is the unfair competition caused by cultural barriers aiding local firms. b. Examples: Long working hours by Indian IT professionals working in United States. 5. Financial services dumping . Fianancial Services dumping is the unfair competition because of country’s low capital/asset ratio. b. Exports due to low exchange rates. CAUSES FOR SOCIAL DUMPING Technology – Technological innovations, particularly in the field of information and communication, have played and still do play a central role without doubt. The Internet represents a symbol for globalization in many respects. Transport – The enormous increase in trade as a further central element of commercial globalization results the fact that transport costs have sunk rapidly, and goods can be transported more quickly.
End of the Cold War – The end of the Cold War is also frequently named as a cause. Whereas the world was divided up into two camps during the East-West conflict, this separating influence crumbled in the years following 1989/90 following the fall of the Iron Curtain. The former “Eastern Bloc countries” have opened their borders to the world market.  Global Problems – Global problems have played a central role, above all at a conscious level. The presence of “one world stores” in the highly developed industrial nations is not the only evidence of this.
Liberalization – Globalization critics in particular, such as the ATTAC network, continually point out that we are not dealing with an inevitable process, but that globalization, in essence, is more the result of deregulation policies under the leadership of the USA since the Second World War. Without the liberalization of world trade within the framework of GATT or the WTO, these developments would, in fact, have been unthinkable.  EVOLUTION OF SOCIAL DUMPING 1974 – 1980:– US congress under pressure from Labor unions had included a provision requiring President to raise subjects of ‘Fair Labor Standards’ in the GATT framework.
Same time European countries suggested minimum labor standards be included to provide tariff preference and financial aid to the African, Caribbean and Pacific countries. 1980 – 1990:– Added social clause for labor in textile and chemical industries. Protection of human minded groups against human right but the developed nation won’t be able to compete with the low wage of the developing nations and use the political powers to lower the standards. They referred this to as the ‘race to the bottom’. But there can be no race to the bottom without any domestic distortions and constraints on tax subsidiary.
Another similar concept they came across was ‘psychological spillovers’.  1990s – The difference in hourly wages of the EU nations: Germany – $26 and Portugal $5. U. S and UK have good and healthy working conditions and not child or forced labor but with low employment protection such as layoff restriction, minimum wages, unemployment benefits etc. In late 90’s almost 5 million workers lost their jobs due to corporate recruiting and they were compelled to take a lower wage job. Pay cuts of 30% and 55% with a lower pay option led to the new public policy amongst workers.  Present situation – firms in high – labor ountries will be free to relocate their operations strengthening their work force and exert downward pressure on the wages and working conditions. Employment totals more than 150 million with almost 2million people changing the job on a monthly basis. As per OECD, U. S has the highest reemployment factor of 2. Future situation – By 2015, roughly 3. 4 million business – processing jobs for U. S firms will be performed abroad. INTERNATIONAL TRADE What’s international trade? International trade is exchange of capital, goods, and services across international borders or territories.
Globalization, multinational corporations, and outsourcing are all having a great impact on the international trade system.  International trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in other factors of production, such as capital and labors. The year since the Second World War, the General Agreement on Tariffs and Trade (GATT) was the only multilateral instrument governing international trade from 1948 until the World Trade Organization (WTO) was established in 1995.  Take two free trade agreements NAFTA and EU for example.
Close economic integration between the US and Mexico borders, Mexico supplies cheap labor but with lax enforcement of health, safety, and environmental standards. United States supplies the consumer market and derives the profit but facing further wage cuts and the unemployment. And EU on the other hand, there are indeed significant differences among EU countries in wages and fringe benefits. Employers in high wage countries are broadly supportive of the Social Charter, which aims to counteract social dumping via long-term “upward harmonization” of labor standards and social policies.
What’s next? Aroused by the issue, anti-dumping measures are regarded as a solution for many people. A more comprehensive answer to the question of social dumping will have to take into account other factors in the investment location decision, such as education and skill levels, infrastructural development, land costs, transportation costs, and the particular costs of multinational operations.  RECENT TRENDS AND EXAMPLES OF SOCIAL DUMPING Social dumping has come into existence since the beginning of industrialization and has increased geometrically since the advent of globalization.
The lower wages in a different part of the country or in a different country, lack of proper enforcement of human rights and employee rights have made social dumping to appear attractive to producers as it provides an opportunity for maximizing profits. The recent trends in social dumping can be divided into two sections. Trends in labor standards: 1)Recently with the exposure given by the media, and the rising awareness by consumers about the low (or absent) labor standards, companies have resorted to creating a better image for themselves by providing better living conditions to the workers. 8] 2)In addition to pressure from the consumer organizations like ECE (Evaluation Committees of Experts) has been enforcing the bills being passed such as International Development and Finance.  3)The host nations are bringing laws into effect that would prevent their labor force from being exploited. Foreign companies have to follow a set of laid out rules to operate in their country.  Trends in operating procedures: 1)The very objective that companies are achieving by moving the production works to low wage regions is “higher profits”.
Despite all the exposure and the laws preventing over exploitation of labor, producers have somehow not decreased their profit margins.  2)Producers have moved to countries where labor standards are more flexible and labor is cheaper. It was considered that relocating and training the new staff was more cost effective than continuing in a region with high restrictions. FUTURE OF SOCIAL DUMPING Increased labor immigration has led to problems with social dumping in some industries.
Social dumping is deemed to be present both if foreign employees are subject to breaches of health, safety and working environment regulations and if they are paid wages that are unacceptably low. The Government’s action plan against social dumping contains measures that are intended to contribute to the necessary regulations being put in place and to ensure compliance with the regulations. Dealing with foreign labor in accordance with the rules and preventing social dumping are significant factors in this. 11]  By development of economics rather than trade sanction, the standard for labor will be promoted and social dumping will be eased. The problem of social dumping is the product based on capital market derived from the uneven development of globalized economics. Therefore, the solution for social dumping must be proceeding in the overall framework of globalization.  REFERENCES 1. Product dumping, labor dumping – it’s all the same http://wistechnology. com/articles/4068/ 2. Dumping http://www. authorstream. om/Presentation/Docker-315709-dumping-20101-kashif-business-finance-ppt-powerpoint/ 3. Environmental dumping http://en. wikipedia. org/wiki/Environmental_dumping 4. http://www. guardian. co. uk/politics/2009/feb/03/trade-unions-lindsey-strikes 5. http://www. amicustheunion. org/pdf/ 6. NECC%20Social%20Dumping%20February%202004. pdf 7. http://www. eurofound. europa. eu/areas/industrialrelations/dictionary/definitions/socialdumping. htm 8. http://www. voxeu. com/index. php? q=node/213 9. http://ec. europa. eu/trade/tackling-unfair-trade/trade-defence/anti-dumping/index_en. tm 10. http://trade. ec. europa. eu/doclib/docs/2006/september/tradoc_129812. pdf 11. http://www. antidumpingpublishing. com/ 12. http://www. regjeringen. no/en/dep/aid/topics/The-working-environment-and-safety/social-dumping. html? id=9381 13. http://www. eurofound. europa. eu/eiro/2010/03/articles/dk1003031i. html 14. http://en. wikipedia. org/wiki/Wiki 15. Journal article by Sheldon Friedman; Challenge, Vol. 35, 1992 p. 27 16. Journal article by Christopher L. Erickson, Sarosh Kuruvilla; Industrial & Labor