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June 25, 2019 4:30 PM, EDT

FedEx Lobs New Attack on Trade Limits as China Threat Looms

FedEx FedEx Corp.

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FedEx Corp. has fired a new weapon in the simmering U.S.-China trade war, suing the Trump administration to block enforcement of trade restrictions that had placed the company in Beijing’s crosshairs.

The federal lawsuit comes after the White House barred U.S. companies from selling technology to Chinese telecommunications giant Huawei Technologies Co. While trying to comply, FedEx employees mistakenly flagged packages involving Huawei in two incidents and now China is considering adding the courier to a list of so-called unreliable entities.

While U.S. companies and lawmakers have expressed concern over how President Donald Trump’s battles with China and other trading partners will affect business, the FedEx litigation represents another new tack. Trump and Chinese President Xi Jinping are scheduled to resume talks this week at the G-20 summit, with no signs the tit-for-tat will end soon.

“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,” FedEx CEO Fred Smith said on Fox News. “Huawei is just emblematic of this problem.”

Chinese authorities have almost completed preparations necessary to blacklist FedEx, people familiar with the matter said. A final decision would be made by senior Chinese leaders, said the people, who asked not to be identified speaking about nonpublic information.

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FedEx CEO Fred Smith (Anna Moneymaker/Bloomberg News)

FedEx dropped 2.7% June 25 in New York, making the stock the worst performer on an S&P 500 index of industrial stocks. FedEx ranks No. 1 on the Transport Topics Top 50 list of North America’s largest global freight carriers.

The company’s suit, filed June 24 in Washington, says that under the Export Control Reform Act of 2018 and other rules, FedEx must choose between operating under the threat of U.S. punishment and facing potential legal trouble from customers and foreign governments. The company moves about 15 million packages a day and many of those are sealed when customers hand them over, according to the lawsuit.

FedEx apologized last month for delivery errors on two Huawei packages that were returned to senders, and China’s biggest tech company said it’s reviewing its relationship with the U.S. courier.

Those packages, which contained documents being shipped to the company in China from Japan, were diverted to the U.S. without authorization. Smith said the decision was an “error” by a 30-year employee, who sent the packages for a compliance audit.

In a separate incident last week, the Memphis, Tenn.-based courier rejected a package containing a Huawei phone being sent to the U.S. from the U.K. FedEx said the rejection was a mistake.

FedEx said it supports the objectives of U.S. export-control laws and has invested heavily in compliance. But the restrictions create an “unreasonable burden” by holding couriers responsible for unwittingly aiding customers, with harsh criminal and civil penalties for violations.

Violations can lead to fines of $250,000 a package.

The Commerce Department said it would defend its security function.

FedEx rival UPS Inc., which also is subject to the restrictions, said it wouldn’t join the suit.

“UPS has not had any extraordinary issues with following government requirements relating to shipping restrictions,” spokesman Steve Gaut said by e-mail.

Meanwhile, the company is in danger of being placed on a list that China said in late May would target firms that the government says damage the interests of domestic companies. That followed U.S. curbs on Huawei. The Commerce Ministry didn’t respond to a request June 25 for comment and the Foreign Ministry declined to comment on whether FedEx would be placed on the list.

“We hope we satisfied them that this wasn’t any nefarious activity on our part,” Smith said in the Fox News interview. “It was just a well-intentioned FedEx teammate that made an error.”

FedEx in September said that package deliveries between the U.S. and China represent 2% of total sales, which would be about $1.3 billion based on 2018 revenue. The company, which doesn’t typically break out sales by country, hasn’t given an amount for its entire China business, which also includes moving packages to locations other than the U.S.