Company pivoting manufacturing methods as tariffs loom

AUSTIN (KXAN) — On August 1, the Trump Administration will start imposing high tariffs on countries that have not yet reached trade agreements with the United States. In response, some companies are adjusting their operations by seeking to designate their sites as Foreign Trade Zones (FTZs) to mitigate the impact.

An FTZ is a physical area located in the US that is considered outside of the U.S Customs territory. As a result, goods that are manufactured within a site that holds FTZ status are not subject to any tariffs or customs duties until the goods physically leave the zone.

"During uncertain times around trade, which we're in right now, the tariffs are causing a lot of uncertainty," said Dave Porter, the Executive Director of Williamson County Economic Development. "We're seeing an uptick in companies, manufacturers, looking at the opportunity [of] a Foreign Trade Zone."

One benefit of an FTZ is the inverted tariff benefit, which allows companies to reduce or eliminate the duty rate—the percentage of the value of imported goods that must be paid to US Customs when those goods enter US commerce. If a product is completed within the FTZ, the company would have a 0% duty rate when the finished goods, such as phones, enter U.S. commerce, resulting in significant cost savings.

"If you're ordering $10 million of inventory, and there's going to be a 40% tariff on it—you don't want to pay that all up front when it comes into the port, it can come straight into the Foreign Trade Zone and sit there until you take that one product out," Porter said. "You don't have to pay it on all the product, just that one piece that you're using right now. And it helps with the cash flow and helps defer some payments on tariffs and duties."

There are many FTZs in the US preapproved by the federal government to have sites in the area FTZ eligible. One of them is the Foreign Trade Zone of Central Texas that consists of Bastrop, Caldwell, Hays, Travis and Williamson Counties.

Currently, in the Foreign Trade Zone of Central Texas, there are five companies that have FTZ sites. Those companies are Samsung, Warm Audio, HID Global, Rohr, and Flex.

Flex is an electronics manufacturing services company that manufactures a wide range of goods for several companies. Currently, Flex's Austin site location has an FTZ designation, and they are looking to make their Round Rock location to also have that FTZ designation.

"Currently, they're at 55 employees, but they have plans to add another 100 over the next couple years," Porter said. "This is part of the process that they're going through to make the site in Round Rock a valuable site to them."

In the application process for a company's site to gain FTZ status, Porter said a company needs to gain approval from the city, county, and school district it's in. During Tuesday's Williamson County commissioners court meeting, the commissioners voted 3-1 in favor of sending a letter in support of Flex to designate its Round Rock facility as an FTZ.

KXAN has reached out to Flextronics for comment and will update this article if a response is given.

Porter told KXAN that two more companies were also looking to gain an FTZ designation at their sites within Williamson County. Those companies were not specified.