No Social Dumping: A Plan To Make Trade Fair

A legislative initiative could emerge soon that could address the race to the bottom fueled by free trade agreements that is harming workers in the United States and worldwide.

The idea is to penalize countries and companies that engage in "social dumping" – the act of trying to win a competitive advantage in the marketplace by paying workers subpar wages, allowing unsafe working conditions or escaping compliance with environmental regulations.

Joel R. Paul, a professor at the University of California Hastings Law School, is scheduled to present the concept on Wednesday before the Senate Banking Committee. At a forum Tuesday at the Economic Policy Institute, he said that he is working with the office of Sen. Jeff Merkley, D-Ore., on a bill that would treat "social dumping" on par with the currently unlawful practice of "dumping" imports into a market at below-cost prices to undercut competitors. Social dumping, as does price-based dumping, would trigger tariffs under the proposed bill.

"When countries like Bangladesh export goods to the United States, they are also exporting problems like child labor, unsafe working conditions and environmental degradation," Paul wrote in testimony prepared for the committee. "These imports compete against U.S. domestic products that are necessarily more expensive to produce because we require producers to internalize social costs like pollution or labor welfare."

Imposing duties on the social dumpers would "level the playing field for U.S. manufacturing, raise labor standards at home and abroad, and stimulate foreign demand for U.S. exports," he wrote.

Countries that wanted to export products into the United States would be required to determine a "fair wage," which Paul says would be what a household of two full-time wage earners with two dependents would need to meet its minimum food, shelter, clothing and health care needs in their country. While the exporting country would set the fair wage based on local costs and conditions, the importing country would assess whether the fair wage was being paid and if a duty would be imposed for noncompliance.

The proposal would address one major concern about the Trans-Pacific Partnership, the latest trade agreement being hammered out by the Obama administration and several major and developing economic powers. Given the effects on workers of past trade agreements, from the North American Free Trade Agreement (NAFTA) signed by President Clinton to the recent trade agreements President Obama signed with South Korea and Colombia, grassroots resistance is building against an agreement that would continue to push down worker wages and further empower multinational corporations to escape basic health, safety and environmental rules.

Thea Lee, deputy chief of staff at the AFL-CIO and an expert on trade issues, was on a panel with Paul at the EPI forum and called Paul's proposal "ambitious." She explained that we needed such an approach because the current trade regime rewards companies in "the most ruthless or least democratic" countries rather than countries that have the most productive and educated workers or the most innovative and efficient companies. "That situation is untenable," she said.

Details have yet to be worked out about how this idea would work in practice and how it would be integrated into a global trade framework. But this approach does face the reality that the current free trade regime doesn't work for American workers, whose wages are being pushed down, or for workers in developing countries, whose wages can't rise as long as there is a desperate or more cut-throat country prepared to allow its workers to be exploited.

Paul's testimony contains sobering statistics: According to the World Bank, 2.4 billion people survive on less than $2 a day. Of 73 countries, according to a Columbia University study, income inequality rose in 48 countries between 1980 and 2000 and decreased in nine. Today the bottom 50 percent of the globe's population own barely 1 percent of the world's assets; the wealthiest 1 percent control 40 percent of the assets. Free trade has come as a high cost for the bottom 99 percent.

One bright light that Paul sees in the free trade debate is that some consumers, and some enlightened corporations, are rejecting goods that are made in conditions that keep workers impoverished and jeopardize the environment. The goal now is to create an economic and legal framework that rewards companies that do right by their workers and the planet. A "social dumping" law could be the hurdle we need in the way of multinational corporations and governments leading the global race to the bottom.