FedEx lawsuit against Department of Commerce reveals US governance predicament

By Song Wei Source:Global Times Published: 2019/7/2 20:18:40

Illustration: Luo Xuan/GT

US carrier FedEx has filed a lawsuit against the US Department of Commerce (DOC) on June 24 to prevent the government from "enforcing prohibitions contained in the Export Administration Regulations (EAR) against FedEx," according to an online company statement. 

According to the statement, the EAR has placed burdens on the carrier's business while harming corporate interests. The EAR requirement forcing the company to "know the origin and technological make-up of the contents of all shipments," the number of which runs in the millions daily, is an impossible task. 

The lawsuit has shocked the US political arena and has dumbfounded the DOC. However, this is not the first time a US company has taken the government to court. The move reveals the predicament public governance faces in Western countries represented by the US.

First, US companies cannot avoid damage when business interests clash with political interests. Capitalism, at its beginning, accepted free competition as the rule of market operations. Efforts have also been made to curb political boundaries, making sure the "leviathan" does not over-expand and erode the interests of companies. 

Friedrich Hayek warned that a powerful government will inevitably devastate the country's economy and push society toward "the road to serfdom." This warning has not stopped the US government, which plays a main role in market regulation, from imposing its political interests on business regulations. When business interests conflict with government interests, public power inevitably infringes on and oppresses private rights. 

The FedEx statement said the EAR measure places an "impossible burden" on them. Policing millions of shipments has caused significant economic losses for the company. During an interview on FoxNews, FedEx CEO Fred Smith said the DOC regulation requires the carrier to certify that the shipper is in compliance with export regulations. Should FedEx make one error, they could be fined $250,000 per shipping item. 

Smith explained the pressure from the DOC, under the current regulation, would mean that all carriers "are expected to be the policemen for these export and import controls." There were about 1,100 entities on the blacklist, with five more added on June 21. After FedEx filed the lawsuit, its stock dropped over 2 percent. By June 24, a DOC spokesperson said they had not reviewed the complaint, but "look forward to defending the Commerce's role in protecting US national security." The DOC has every intention of defending the measure in the name of national security, which in turn could force the company into an "ethical dilemma" and a decision between national security and company interests. 

Second, even with legal support, US companies face significant pressure and risks when suing the government. Many scholars proudly claim that Western countries have achieved full competition between market and government. Public governance in Western countries will correct itself during this free competition process as competition prevents the government from reinforcing itself and expanding, and stops the public power from being unscrupulous and becoming "the fatal conceit." However, numerous laws and a long litigation process have restricted US firms from defending their rights through legal channels. Most US companies do not see confrontation with the government as a desired option. 

Cases are easily got caught into the endless waiting and passing the buck, which wastes time and money. Therefore, FedEx is under huge pressure to sue the DOC for violating the Fifth Amendment due process.

There are many examples where US companies have experienced losses resulting from legal complications with the government. 

Microsoft filed a lawsuit in a Seattle federal court against the US government in 2016. The US government, citing the Electronic Communications Privacy Act (ECPA), prevented Microsoft from notifying users that the government was requesting their information. 

Microsoft argued the 30-year-old ECPA was outdated. After US congress amended the ECPA, the US Supreme Court ruled the case was meaningless, a move aimed at protecting the government from defeat.

Third, how to prevent the government from trespassing on companies' interests with public power has been a governance predicament for Western countries for a long time. One key topic of Western political science studies is how to determine the boundary between the government and market. During oil crisis of the 1970s, Western countries, with government intervention policies, suffered from stagflation and government failure. Under the influence of neoclassical theories, the notion that the market is the best way for resource allocation was reestablished. 

The competition between public power and private rights continues. Debates continue to rage over whether or not public power should be returned to its cage. Without better alternatives, companies in the West will continue struggling with lawsuits against their government. The US government in the 1990s sued several tobacco companies for deceiving the public about health risks connected to smoking. The case dragged on for several years. Plaintiffs and defendants threw large amounts of money at the case. 

In 2017, Twitter sued the US Department of Homeland Security for asking the company to provide information on a user's account. The next day, Twitter dropped the lawsuit and said the demand had been withdrawn. 

From a historical standpoint, a market mechanism was developed from free competition capitalism. With the development of economics, the flaw in market mechanisms started to show. To fix the flaw, the Western public governance system adopted concepts such as government intervention and omnipotence. After repeated setbacks and exploration, there is still no effective solution to those governance predicaments. This suggests that the ideal condition for government and market coordination is nothing more than an empty notion.

The author is an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.


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