There's some disagreement as to whether weak labor laws are used by certain countries to attract foreign investment (or at least, they have that effect, even if it is not their goal). Some critics of trade agreements say that weak labor laws in some countries leads to unfair trade, as it is difficult for companies in industrialized countries to compete with companies in the developing world whose labor costs are much lower. By contrast, others contend that the evidence does not show this is a significant factor companies take into account when choosing a location.
I tend to think it is a factor, but just one of many. Here's some anecdotal evidence from the domestic context that it can have an impact. From the Economist:
In 1983 Nissan became the first foreign carmaker in America’s South when it opened an assembly plant in Smyrna, Tennessee. Other Asian and European automakers soon arrived, bypassing Detroit for Dixie and building factories in Kentucky (Toyota), Alabama (Honda, Mercedes-Benz, Toyota, and Hyundai), Mississippi (Nissan), Texas (Toyota again) and South Carolina (BMW). A common attraction in each of the states was the anti-trade-union climate.
Now the aircraft industry is following suit. Late last autumn Boeing announced it would build a second assembly line (the first is in the Seattle suburb of Everett, Washington) for its 787 Dreamliner jet in North Charleston, outside the lovely old city of Charleston. The company chose to put its $750m factory in South Carolina because it was determined to distance itself from a fractious labour union in Everett. Machinists there went on a 57-day walkout in 2008 that cost the company more than $2 billion and led some airlines to switch their orders to Europe’s Airbus.
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South Carolina has one of the lowest rates of unionisation in the country. Amazingly, according to the US Bureau of Labour Statistics, not a single work day was lost to strikes in the state in 2008. And workers who currently make 787 parts at another Boeing factory in North Charleston voted in September to cut their links to the International Association of Machinists.
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Mr Woodward reckons that South Carolina and other southern states, which have laws against union closed shops and relatively low labour costs, are a template that could help America retain at least some of its shrinking manufacturing base.
So this article demonstrates that weak labor laws attract investment, right? Well, maybe. There's also this:
Details of the estimated $450 million incentive package that South Carolina has promised Boeing Co. could draw international attention as fodder in a long-running trade dispute between the aviation giant and its European rival, Airbus.
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Airbus Americas chairman Allan McArtor views the South Carolina incentive deal differently.
"Of course it's a subsidy!" McArtor said in an written statement about the offer. He said that it will be up to the European Union to pursue further action.
Boeing was not identified by name in the special legislation that lawmakers passed in October to win the assembly plant, but the bill made certain incentives available to companies that generate more than 3,800 jobs and invest more than $750 million during a seven-year span.
Boeing has said it plans to meet those thresholds.
So which is it? Weak labor laws? A $450 million subsidy? A little of both?
As the second article notes, subsidies are covered by international trade rules. Should weak labor laws be covered, too? They are covered in some recent FTAs, but as discussed just the other day, it's not clear whether existing WTO rules can do much here.
As a final point, there's an interesting "specificity" issue: "Boeing was not identified by name in the special legislation that lawmakers passed in October to win the assembly plant, but the bill made certain incentives available to companies that generate more than 3,800 jobs and invest more than $750 million during a seven-year span."
