This is from a recent paper by Greg Shaffer:
(i) Protection against social dumping. Claims of unfair trade proliferated following the election of Donald Trump. The underlying problem from a social policy perspective, however, is not “unfair trade” as viewed through the traditional WTO lens of product dumping because antidumping procedures tend to involve accounting ploys to show differences in pricing that may be economically justifiable and thus not “unfair.” The real underlying concern should be social dumping of products—that is, products produced under exploitative labor conditions—that sell for less than domestically produced products, and that thus lead to concerns over wage suppression and reductions of labor protections in the “North.” These policies can undermine the domestic social contract and trigger political contestation against trade. A number of bilateral and plurilateral agreements include labor clauses pursuant to which countries agree not to obtain a trade advantage by failing to uphold national labor laws or (in some cases) minimum labor standards. These provisions, however, have proved insufficient in ways that this proposal aims to remedy.
If provisions to safeguard against social dumping are incorporated into trade agreements, they should be subject to strict procedural, substantive, and injury requirements to combat abuse. Many of the provisions could take from the current WTO antidumping regime. The procedural criteria could mirror or build on Articles 5 (Initiation and Subsequent Investigation), 6 (Evidence), 11 (Duration), 12 (Public Notice and Explanation of Determinations), and 13 (Judicial Review) of the WTO Antidumping Agreement. Most importantly, due process rights would be provided to affected parties, including exporters, importers, organized labor, and other social groups, including consumer organizations. Similarly, injury criteria could reflect those set forth in Articles 3 and 4 of the WTO Antidumping Agreement, which require the showing of a “material injury,” or threat thereof, to a “domestic industry.” WTO jurisprudence provides significant guidance regarding these provisions’ application.
The first challenge with implementing this proposal is to specify when violations of labor rights occur so that a country may impose increased tariffs. The criteria chosen would build from experience with existing labor chapters in trade agreements, including the original TPP. The norms would address labor rights violations, and thus not undercut developing countries’ comparative advantage in producing goods with lower skilled labor in reflection of differences in productivity. The list of labor norms would include rights against forced labor, child labor, hazardous work, and discrimination, establishment of maximum working hours and a minimum wage, and most fundamentally, rights to freedom of association and collective bargaining. A country deciding to impose duties would need to show sustained violations.
A second challenge is obtaining evidence establishing labor rights violations. This can and has been done. Indeed, the U.S. prevailed on this issue in its challenge of Guatemala’s labor practices under the U.S.-Central America Free Trade Agreement (CAFTA). To gather evidence of labor rights violations, governments can work with labor and civil society organizations, and recognize and incorporate evidence from reports of the International Labour Organization (ILO) on country practices, as the U.S. did in the Guatemala case.
A third challenge is to determine the amount of tariffs that may be imposed on the imports in response to the labor rights violations. The WTO Antidumping Agreement provides detailed provisions for the calculation of antidumping duties based on a comparison of product prices in the country of production and the importing country to determine dumping margins. The result is high transaction costs for all sides, including for the administrative authority. Accounting for the price differential caused by social dumping, in contrast, would not be necessary. In the case of social dumping, duties could be limited to the amount that would offset the injury that the increased imports from the country in question cause or threaten to cause to the domestic industry. Calculating such amount would be more transparent and not involve the manipulation of pricing data, thus reducing administrative costs for firms and administrative agencies. It would be analogous to the calculations made in safeguard procedures conducted under the WTO Agreement on Safeguards.
There are two key differences between this proposal and trade agreements such as CAFTA. First, under this proposal, a country can take direct action against imports produced under non-conforming labor standards. This proposal would shift leverage to the importing state to protect its social contract. No longer would it have to bring an international claim against the party violating the agreement. Rather, subject to procedural, substantive, and injury requirements, the importing country could impose a social dumping duty, just as it currently can apply a traditional antidumping duty under existing antidumping law.
Second, the petitioner bringing the domestic social dumping action need not prove a causal link between the labor rights violations and increased imports. Rather, a petitioner would only need to show a correlation between (a) the violation of the specified labor rights, and (b) an increase of imports of the products from the country in question that causes or threatens to cause material injury to a domestic industry. The analysis would be simplified. The focus would be on the existence of sustained labor rights violations, in combination with a percentage rise in imports relative to domestic production that causes or threatens to cause material injury to a domestic industry.
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Such a social dumping agreement can be subject to abuse and thus must be subject to legal discipline. One can envisage different mechanisms to counter abuse.
First, the procedure could be subject to a complementary mechanism of international review. For example, an analogue to NAFTA Chapter 19 could be incorporated so that an exporter could request the establishment of a binational panel to review the final determination issued by the relevant authority. Under NAFTA, the binational panel, composed of five members from the two countries involved, can affirm, overrule, or remand agency determinations. These decisions are binding within the domestic jurisdiction and cannot be appealed to domestic courts. The process is complemented by an extraordinary challenge procedure where a NAFTA party can challenge a binational panel ruling on limited grounds, such as for manifestly exceeding its powers. Second, or alternatively, the targeted country could trigger conventional WTO dispute settlement procedures and bring a claim of non-compliance before the WTO dispute settlement system, just as under the existing WTO antidumping regime. Third, as with all WTO agreements, compliance would be overseen by a WTO committee. In this case, however, representatives of the ILO could be granted official or observer status within it, leading to greater coordination of international labor rights policies.
If current antidumping law remains a parallel procedure (which would likely be the case given the political economy of trade negotiations and the need for a political safety valve), then there would be rules against “double counting,” just as there are when antidumping and countervailing duty investigations are conducted. Alternatively, provisions on social dumping could be integrated into the current antidumping regime. The E.U. has made the first gesture in this respect by amending its antidumping law to take account of international labor and environmental standards.
If countries fail to agree to such provisions, countries could attempt to apply them under existing WTO law by claiming a general exception under GATT Article XX(a), which permits countries to restrict imports where “necessary to protect public morals.” Article XX(a), however, lacks this proposal’s procedural, substantive, and injury criteria and thus would be more subject to abuse. Moreover, the rationale for its use would have to be on moral grounds over the treatment of foreign workers, rather than economic and distributional grounds regarding the protection of domestic workers and the domestic social contract. Thus, it should be much more difficult for a neo-nationalist government—such as that currently in power in the United States—to prevail compared to one whose policies are expressly outward-looking.
(footnotes omitted)
I appreciate Greg's efforts to bring some objectivity to the process of identifying social dumping, because it is certainly ripe for abuse by protectionist interests. But even though abuse is likely here, that isn't my main concern. I have three broad objections to the concept of tariffs imposed in response to social dumping.
First, this may sound nit-picky, but I don't like the term "social dumping." It seems like an accusation of some nefarious practice, as if there were a widespread conspiracy in the developing world to be poor and have cheap labor. To me, this term feels like it is part of a "them furriners is cheatin us" view of trade policy. I realize that the term has been around for a while, and Greg is just using the common term that other people use, but I think we need a better way to describe what is going on.
Second, while I know Greg is not anti-development, proposals to address social dumping come across as anti-development. As nations work their way up the development ladder, the industrial working conditions in the early development stages are often appalling from the perspective of those of us who work in air conditioned offices. So far, every country that has industrialized has gone through a period with some unpleasant working conditions. By using tariffs to target products made in the working conditions of countries in the early development stage, you may just be hindering their development and slowing their progress towards what advanced economies have now.
In theory, though, we can learn from past mistakes, and help poor countries skip this oppressive step in the usual development pattern. I'd like to see us find a way to do this. However, I'm skeptical that financial penalties for doing what everyone else did is the way. Tariffs applied in the way Greg describes may prevent countries from taking that first industrial step, and keep them mired in poverty.
If the goal is to help workers in developing countries avoid bad working conditions, a better approach might be to use some of our resources to help employers in poor countries provide better working conditions. I understand why it would be politically challenging to make that happen, but nevertheless I think this idea would be better received.
And third, from what I can see, people in countries at every development level are very clever about coming up with reasons to tax products made by their foreign competitors. In rich countries, it is complaints about cheap labor. In poor countries, it is complaints about super-efficient or subsidized products. Each side thinks they are being treated "unfairly." What I imagine happening if wealthy countries implemented "social dumping" tariffs against poor countries is that poor countries would respond with "post-colonialism dumping" tariffs (or something along those lines) on imports from wealthy countries. We would end up with an escalating trade war, under which we all lose.
Greg is not unaware of these issues, and he talks about giving more industrial policy space to developing countries in exchange for their acceptance of social dumping tariffs, and along these lines he says this:
(iii) Feasibility. Negotiation of these provisions would not be easy. Developing countries are wary of granting authorization to developed countries to block imports on social dumping grounds and developed countries are suspicious of emerging economy industrial policies. Emerging economies would demand some benefit from the negotiations to the extent that they could be excluded from the industrial policy exceptions and be a target of social dumping measures. Similarly, to the extent that many developing countries do not feel constrained by the SCM Agreement, they may find that they have less to gain from these negotiations than developed countries.
Here is where bargaining and politics come in. First, countries would have to prioritize these issues, particularly regarding labor rights since the WTO rules already provide some room for industrial policy. Second, subject to bargaining, provisions can be structured to combat abuse so that they would be subject to no more (and arguably much less) abuse than current WTO rules on “unfair” trade, such as anti-dumping and countervailing duty rules. For example, developing countries could be granted compensation when prevailing in a WTO challenge against a social dumping measure, which then could be passed onto the affected companies. Third, bargaining could incorporate other issues of interest to countries, whether involving market access or other forms of policy space. Finally, the difficulties faced should be compared with the real-life alternative of existing challenges to the trading system. These issues should be frontally discussed so that the underlying social and development issues are addressed transparently. A multilateral institution such as the WTO provides an important forum for doing so. Negotiations can advance in parallel in plurilateral and bilateral fora. The conceptualization of trade negotiations in all fora should explicitly address policy space concerns.
Greg notes that "[n]egotiation of these provisions would not be easy," but I think he is underestimating how hard they would be. More importantly, however, I'm not sure there is a need for any of this. In my view, calls for "social dumping" tariffs misread people's demands for protection from imports. I don't see a broad concern about "products produced under exploitative labor conditions—that sell for less than domestically produced products, and that thus lead to concerns over wage suppression and reductions of labor protections in the 'North.'” Sure, there are a handful of industries that face this competition, and they may think the tariffs they demand sound more legitimate when weak labor standards abroad are mentioned. But for the most part, companies who want protection from imports just don't want any competition, and they don't care where the product is coming from. Even if the tariffs raised labor standards abroad (which I think is unlikely), that would not stop the demands for protection. In addition, outside of the affected industries, everyone -- especially poor people -- seems pretty happy that they are able to buy cheaper products.
I know there are people on the left who are concerned about the impact of trade, and worry that its disruptive effects will undermine democracy and the liberal international economic order. But I think they are worrying about the wrong things. I see a backlash among left wing voters against capitalism and corporations; and I see a backlash among right wing voters against foreigners generally. But I don't think there is much of a backlash against trade itself, and I don't think imposing tariffs on imports from, say, Viet Nam on the basis of its cheap labor and weak labor protections is going to win the Democratic party many votes or shore up support for the world trading system.
