Social Dumping (types and causes)

The social dumping it's a kind of economic crime that engages in unfair competition, whereby companies minimize costs to take advantage of the conditions and low wages of workers who the underdeveloped countries possess and thus achieve reductions in the labor costs of production and in this way offer prices that could be highly competitive in the market for maximize profits.

This practice of selling goods and services at low prices, is used more than anything in the content of international trade and is a bad way to do sales abroad at lower prices, compared to those sold in the domestic market, which will help to be above the competition direct.

Causes of social dumping

The social dumping It can be understood from two perspectives:

• On the one hand, there is the high protection that developed countries give to all their employees, through various measures such as wages, regulation on job security and compensation for dismissal, these will be some of the expenses that companies will try to reduce and if possible avoid.
• On the other side are the underdeveloped countries, where their labor legislation is still in the process of development. In most of these countries, the salaries they offer are quite low and the conditions of employment work are established in a much less demanding way, which generates lower costs to the Business.
• Due to these two situations, multinational companies can take their production from countries that are already developed to those that are still in that process in order to save costs. When this cost saving is carried out due to the poor employment situation, prices of greater competition are derived and social dumping occurs.

Effects caused by social dumping

In developed countries the social dumping effect The main disadvantage is the loss of business investment, especially in jobs and tax collection. When implanted in other countries to save costs, these companies reduce the number of employees in developed countries to stop paying taxes to the state.

In developing countries, the consequence of this effect is job insecurity, that is, if governments use lack of labor protection as claim to attract foreign investors, employees will be without any type of protection and thus companies will be able to use that to lower their costs. It is a situation that can be given by corrupt governments that have the authority to prevent workers from claiming their rights.

However, it may happen that the competition produced by the arrival of a large number of companies in the underdeveloped countries, allow wage increases and improve the working conditions of employees.

Classification of social dumping

The types of dumping are classified as follows:

Sporadic

It is the occasional loss of sales, which allows price discrimination due to the appearance of surpluses in the production of a certain product, in this case, so that the producer does not have an internal imbalance and avoids the financial costs included, tries to divert these excesses to the international market in low-cost prices, which will help the imported country to increase its potential.

Predatory

It is determined as unfair competition and the most damaging way to lose the sale. It is the sale made by the exporter of the external production of the market, allowing a loss that at the same time time of profit and thus be able to exclude the competition, setting new prices that will benefit you in the long run term.

Persistent

It is the continuity of export that is carried out below prices, to increase the opportunity to take advantage of differentiating the flexibility of prices demanded by the domestic market against export.

What is international dumping?

It is a technique that focuses on international markets, to set prices below the real cost at which the company has made a exportThis will allow the prices of the product sold to be lower in the foreign country than in the country that exported it.

This execution can generate differences, since in many countries it is prohibited to make sales below the real costs of production, despite this, there are some exceptions such as excess production or if it is shown that the sale may produce losses by having to sell the product at full cost of manufacturing.

According to those who defend the market, they affirm that this manages to be of great benefit to consumers, because they can get the products cheaply, however all the time this is not permitted.

Obviously the producers of the country to which the product is destined in which it is made dumping, may lose some credibility, by having to offer their own products at higher prices than those that have been brought from other countries. Dumping can be avoided through high taxes on products where it takes place and can be reported to the World Trade Organization.