Bruce Murphy
Murphy’s Law

9 Reasons a New Foxconn Contract Is Unlikely

Foxconn says the new deal is “within reach.” On the contrary, it’s far from settled.

By - Dec 21st, 2020 04:41 pm
Foxconn signing. File photo by Graham Kilmer.

Foxconn signing. File photo by Graham Kilmer.

Have you heard the news about Foxconn? They are about to sign a new contract with the state of Wisconsin.

That at least is what Foxconn says, and some in the media have reported. On Friday the company released a statement to the media saying that “Foxconn is optimistic” that an amended contract with the Wisconsin Economic Development Corporation (WEDC) “is within reach.”

Readers will recall that officials with the WEDC and state Department of Administration have been trying for some time to renegotiate the contract with Foxconn, with no luck.  And now the company says a new contract is imminent? There are many reasons to doubt this, including: 

1. The impasse has lasted a very long time. It was back in March 2019 — 21 months ago — that Foxconn first broached the idea of renegotiating the contract. Since then the state and company have gotten exactly nowhere, suggesting this is not an easy impasse to solve. 

2. Foxconn’s media statement has the feel of a spin job. The technology publication The Verge, was reporting on the latest contract negotiations with a story showing they were still far apart on key issues. Foxconn meanwhile released a sunny media statement and got the desired result, a news story by the AP with a headline that Foxconn and Wisconsin “nearing agreement.”

3. State officials offered no such optimism. The story by the Verge quoted an email from WEDC CEO Missy Hughes to the company saying Foxconn still needed to outline its “specific plans about what Foxconn will build, the type of business, the types of jobs and salaries,” which the state has been asking for since the beginning of negotiations. And without that there can be no contract. 

4. Foxconn still doesn’t know what it’s doing. As Hughes told the Business Journal, “For Foxconn, because they’re right at the beginning stages, there’s a lot of different ways that they’re thinking about what they’re going to be working on, whether it’s artificial intelligence or smart manufacturing.” So three and half years after Foxconn signed a contract with the state, it is still at the beginning stages trying to figure out what it will manufacture. 

5. Not one of the ventures Foxconn announced have happened. The company’s original plan to build a Gen 10.5 LCD manufacturing plant was abandoned and replaced by a plan to manufacture Gen 6 LCD products, which has yet to happen. It has flirted with plans to make everything from airport coffee kiosks to fish farming or dairy exporting. In April it announced it would be manufacturing ventilators with a goal of 400 ventilators per week by the end of April and 700 per week by the end of May.  No sign of those ventilators yet. Instead the company announced a month ago it would be manufacturing data servers, around the same time that “sources” told Bloomberg that Foxconn would be doing this work for Google. Except that there was no statement from Google or from Foxconn confirming this. Meanwhile the company has taken out a permit to use the facility it built in Mount Pleasant for storage. 

6. The two parties can’t even agree on the basics. Foxconn has insisted to WEDC that it hasn’t violated the original contract, because it never promised to build a Gen 10.5 facility, despite explicit language in the contract spelling this out, as The Verge reported. But the state has said the Gen 10.5 project was central to the contract: “Without a Generation 10.5 TFT-LCD Fabrication Facility, there is no justification, or consideration, for the enormous tax credit incentives or expense to Wisconsin taxpayers.” Foxconn insists its agreement with the state was something vaguer, for “a transformational and sustainable high-tech manufacturing and technology ecosystem in Wisconsin that brings long-term investment and jobs.” But the WEDC has repeatedly made clear it won’t offer subsidies until it has specific information on the type of business, jobs and salaries the company plans. 

7. Foxconn’s willingness to accept less money is a minor concession. This was enough to win a headline in the Journal Sentinel, another victory in the company’s ongoing attempt to spin the media, but was pretty meaningless. The company originally promised to invest $10 billion, and says it has spent $280 million, promised 13,000 jobs and has created perhaps a few hundred permanent jobs. It’s a given that it will be getting less in state tax credits. The real question is whether it will ever earn any tax credits. Foxconn says it’s willing to “lower the taxpayer liability in exchange for a flexible business environment in Wisconsin,” which appears to mean a vague deal without the specifics the state demands. 

8. Two contract loopholes could be deal breakers for Foxconn. The current contract has a loophole that allows the company to collect investment tax credits for hiring seasonal employees for as short a period as a few weeks. There is another loophole that could allow Foxconn to charge the state for work done outside Wisconsin, which the Legislative Audit Bureau has noted and Hughes has pledged to address. State officials will want to fix both loopholes because they allow Foxconn to game the system. For the same reason, the company will oppose modifications. 

9. Foxconn’s optimism about a settlement went nowhere: The recent statement that the company was “within reach” of a settlement with the state echoes a statement by a Foxconn lawyer in a December 2 email to the WEDC saying “I am confident that after months of discussions we are on the brink of coming to acceptable terms” and “should be able to accomplish this objective at our meeting this Friday.” The Friday meeting on December 4 left the two parties still in the same place, with the WEDC still asking for specifics on the company’s plans, as the Wisconsin State Journal reported.

It’s a simple information request, but an impossibility for a company that has no idea what it can profitably manufacture in Wisconsin.

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