What responsibility does a freight provider have in ensuring shippers comply with trade restrictions? That is the central question FedEx Corp. (NYSE: FDX) is asking in its lawsuit against the U.S. Department of Commerce. According to the suit, FedEx is being burdened by having to comply with Export Administration Regulations (“EAR”) that are constantly changing and helped place the company in the crosshairs of the U.S.-China trade dispute.
FedEx is asking the United States District Court for the District of Columbia to stop the Commerce Department from enforcing prohibitions contained within EAR. The company said EAR “violates common carriers’ rights to due process under the Fifth Amendment of the U.S. Constitution as they unreasonably hold common carriers strictly liable for shipments that may violate the EAR without requiring evidence that the carriers had knowledge of any violations.”
Essentially, FedEx is claiming that complying with EAR is burdensome, costly and a single mistake can be detrimental to its business.
EAR comprises the regulations that make up the Export Control Reform Act of 2018, which requires companies to screen names and addresses of shippers and receivers and identify any names on the EAR “Entity List,” a blacklist of people and companies that goods can’t be shipped to. The list includes ““persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States.”
FedEx said it has developed sophisticated methods to ensure compliance, but the constantly changing trade restrictions being deployed by the Trump Administration requires “considerably more screening than possible from common carriers,” FedEx said in the lawsuit.
“This puts an impossible burden on a common carrier such as FedEx to know the origin and technological make-up of contents of all the shipments it handles and whether they comply with EAR,” FedEx said in a statement.
EAR restricts the international transfer of commodities, technology, information and software for reasons of national security and foreign policy. The list has been around since 1979, but with the Administration using trade restrictions as leverage to secure improved trade deals, that list is continuing to change and placing undue burden on common carriers, FedEx alleges.
The company, in the complaint, said that even if it “were to inspect the contents of every package for re-export that it delivers, the company would not have enough information to make highly technical determinations to assess whether an item outside the U.S. is an ‘item subject to the EAR.’”
In determining compliance on a package-by-package basis, FedEx could end up violating codified civil privacy laws, it said. To comply, the company said, it would have to ban all shipments to any party on the EAR Entity List, even if that item was not restricted, simply because FedEx would not know whether the item within the sealed box was subject to EAR.
“The increasing use of restrictions on exports and imports by the Commerce Department in various geopolitical and trade disputes creates just an impossible burden on FedEx and common carriers,” Fred Smith, FedEx CEO, told Fox News Monday night. “Under the Department of Commerce regulations, we are expected to be the policeman for these import and export controls. There are about 1,100 entities on this list and five were just added last Friday.”
The suit notes that the law often exempts common carriers such as internet service providers and telecommunications companies from liability for the content of packages and communications they transmit. However, the EAR regulations hold freight businesses liable as “aiders and abettors” of EAR violations committed by customers.
“We’re required under the regulations of the department to certify that the shipper, who may or may not be telling the truth, is in compliance with those export regulations,” Smith said. “And despite the fact that we handle 15 million shipments a day, if we make an error on any one of them, without a trial or any due process, we can be fined $250,000 per piece.”
FedEx cited the precedence of United States v. Jacobson, 466 U.S. 109, 114 (1984), as reaffirming that the public has a reasonable expectation of privacy when shipping letters and other sealed packages.
“Common carriers, as transporters for the public, cannot reasonably be expected to police the contents and ultimate destinations of the millions of daily shipments to ensure compliance with the EAR,” the suit claims.
The suit names the U.S. Department of Commerce; Wilbur Ross, U.S. Secretary of Commerce; the Bureau of Industry and Security; and Nazak Nikakhtar, assistant secretary for industry and analysis with the Bureau of Industry and Security.
“We hope the Commerce Department will come up with a solution that eliminates the requirement that we be the policeman for these shipments and other common carriers as well,” Smith said.