Social dumping is a practice of employers to use cheaper labour than is usually

available at their site of production or sale. In the latter case, migrant workers are
employed; in the former, production is moved to a low-wage country or area. The
company will thus save money and potentially increase its profit. Systemic criticism
suggests that as a result, governments are tempted to enter a so-called social policy
regime competition by reducing their labour and social standards to ease labour costs
on enterprises and to retain business activity within their jurisdiction.
There is a controversy around whether social dumping takes advantage of an EU
directive on internal markets, the Bolkestein directive.
Entities losing from social dumping:

 Employees in exporting countries

 Child labor in exporting countries
 Industry and environment in exporting country
 Government in exporting countries
 Employees in importing countries
 Shareholders of the company in importing countries
Entities gaining from social dumping:

 Companies in importing country

 Shareholders in importing country
 Customers in importing country
 Industry in importing market
 Employment in exporting country
 Government and investment in exporting country

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’.