FedEx’s Multi-Million Dollar Gamble: Risky, Uphill Legal Battle

Bye-bye, FedEx? Not so fast. The global forwarding firm featured in Hollywood blockbuster Cast Away starring Tom Hanks
Bye-bye, FedEx? Not so fast. The global forwarding firm featured in Hollywood blockbuster Cast Away starring Tom Hanks

International forwarding company Federal Express (FedEx) is now virtually sitting on thin ice with its courageous, yet financially risky decision to stay and continue to invest in the Philippines despite the Court of Appeals’ recent decision that the firm’s continued operations are in violation of the protectionist Constitution and a threat to local competitors.

FedEx in a statement said it has increased its investment by allocating more than P500 million for the construction of new facilities.

In its decision, the appellate court opined that the world’s biggest forwarding firm is a foreign-owned corporation, thus it cannot engage in public utility services such as international airfreight forwarding, and that its continued stay is detrimental not only to the interest of local firms but to the country’s economy as well.

I honestly believe that FedEx is fighting an uncertain, very dangerous legal battle, and a very costly one that could negatively affect the financial interests of its investors and stockholders. The CA’s decision states that FedEx, a foreign corporation, is “disqualified in our country from operating as an ‘international airfreight forwarder’ which is clearly a public utility”.

The 1987 Constitution establishes protectionism and foreign restrictions in the name of protecting the interests of Filipinos and local industries against foreign competition.

For instance, Section 11, Art. XII of the Constitution specifically states (emphasis mine):

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.cralaw

By elevating its case to the Supreme Court, FedEx is in effect challenging the Constitution’s protectionist policies and restrictions, a move that could potentially enrage protectionists in the government, media and academic sector. As I see it, it would take aggressive executive intervention in the high court to save FedEx. Remember that President Noynoy Aquino is determined to cut high unemployment rate to boost his image and approval rating. 

The multi-million peso question now is: Is the Supreme Court ready and willing to run the risk of setting a new precedent, probably a highly dangerous, controversial one that could antagonize some sectors and/or divide the country, by adopting a new judicial doctrine to justify its possibly contrarian decision?

Wilson Gamboa: My former Taxation professor. We used to call him "very important, very important".
Wilson Gamboa: My former Taxation professor. We used to call him “very important, very important”.

I think I need to read the landmark Gamboa case to better understand the country’s protectionism wherein the SC, voting 10-3, denied PLDT’s (Philippine Long Distance Telephone Co.) appeal regarding a breach of the 40% foreign ownership limit.

As already stated, the Constitution bars foreigners from controlling over 40 percent of a utility firm. The late PLDT stockholder Wilson Gamboa Sr., who filed the petition and my former law professor, had claimed foreigners had up to over 81 percent stake in the country’s biggest telecommunications firm. The Court ruled in favor of Gamboa, thus affirming the country’s protectionist policies against foreign investors.

Here’s a report from Philippine Star:

International forwarding firm Federal Express (FedEx) said yesterday it will continue operating in the Philippines until a final ruling is issued by the Supreme Court on its operations.

In a statement, FedEx said it is operating as an independent body in the Philippines under a International Freight Forwarder License issued by the Civil Aviation Board (CAB).

The license was issued on May 2, 2011 and is valid until May 1, 2016, FedEx said.

The company issued the statement in reaction to a report that the Court of Appeals (CA) had voided its permit, effectively stopping the firm’s operations in the Philippines.

The CA ruled with finality that FedEx operations in the country violate the constitutional ban on foreign ownership of firms delivering public utility services.

Pending the final decision of the Supreme Court, the CAB has confirmed that FedEx, together with all of the more than 30 other foreign-owned airfreight forwarders, can continue to operate under the license.

Headlines ( Article MRec ), pagematch: 1, sectionmatch: 1

FedEx said it has increased its investment commitment to support economic growth in the country. It has allocated over P500 million for the construction of its new Manila and Cebu gateway facilities, Clark customer service offices, and Manila district headquarters.

Goodluck to FedEd.


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