Deep reveal behind Foxconn’s U.S. factory ‘difficult to produce’: Contradictions are on the horizon

According tomedia reports, documents learned show that Foxconn’s current project has seriously deviated from the planned display plant in Wisconsin. The scale of the projects, which have been shrinking, contrasts sharply with the $4.5 billion in taxpayer subsidies. When the local government wanted to modify the contract to reflect the true status of the new project, Foxconn did not respond and intended to apply for tax breaks, an irreconcilable contradiction, a hair-trigger.

Deep reveal behind Foxconn's U.S. factory 'difficult to produce': Contradictions are on the horizon

The following is the full text of themedia report:

Whatever Foxconn intends to build in Wisconsin, it will not be the “eighth wonder of the world” that President Trump promised earlier — a $1 billion, 22 million-square-foot 10.5-year-old liquid crystal display (LCD) plant. Over the past two years, Foxconn has repeatedly changed its rhetoric: first it says it will build a smaller LCD factory; it says it doesn’t plan to build it, and it says it’s going to make everything from car screens to server stands to robotic coffee kiosks.

In between, the question looms: If Foxconn intends to build something that is the opposite of the 10.5-generation LCD plant originally contracted with Wisconsin, will it still receive a record $4.5 billion in taxpayer subsidies?

Wisconsin officials have repeatedly – and once again – have warned Foxconn that its current project has deviated from what was described in the original deal and that it would have to modify the contract if the company still wanted subsidies, according to documents obtained bymedia. Foxconn, however, refused to change the contract and said it still intended to apply for tax breaks.

Joel Brennan, Wisconsin’s chief executive, said Foxconn “refused to” modify the contract in an inaction way,” and we’ve been reminding them. Last time they said, ‘No, we’re not going to do anything about the contract. ‘Our expectation was, and will be, that they should go back and discuss the contract with us. “

Foxconn first proposed a change in the contract at a meeting on March 11, 2019, the documents show. In the months that followed, officials from the Wisconsin Economic Development Corporation (WEDC) and Gov. Tony Evers urged Foxconn to formally apply for a contract modification to reflect the company’s actual engineering, which would involve current plans, expected costs, Description of employment and other basic details.

However, Foxconn has never taken any action.

In contrast, a Foxconn representative wrote a text message asking the then WEDC chief executive to find a way to qualify the current plant for the subsidy stipulated in the original contract. The company later claimed that it was entitled to a subsidy no matter what it built in Wisconsin. In late November, after Alan Yeung, Foxconn’s head of Strategic Planning in the US, accused the Government of being unfriendly to the company and said that “discussing matters that are not important is a waste of time and energy for all of us”, the negotiations appeared to have come to an end.

Despite the impasse, Jay Lee, Foxconn’s vice-chairman, recently told reporters that the company had hired more than 520 workers under the contract to get a subsidy for 2019. The results have come as a surprise, given that Foxconn had only 156 employees in Wisconsin late last year and had not yet carried out any production activities. If Wisconsin approves Foxconn’s subsidy application, the state could pay more than $50 million in cash to Foxconn next year.

But unless there is an unexpected turn in the coming weeks, Foxconn’s application is likely to end in a bitter legal showdown, with wisconsin and The Evers government on the other side. To modify the contract, Foxconn will have to make clear what it plans to produce in Wisconsin — something the company has long refused to do.

“It’s time to give us a clear answer,” said Representative Gordon Hintz of Wisconsin. In addition to Donald Trump’s appearance in May, unveiling the mystery of assembling flat-screen TVs in public and then declaring ‘This is what we’ve achieved’, Wisconsiners need more realistic results. “

Asked what would happen if Foxconn applied for tax credits now, Mr Brennan said the subsidies would be eliminated.

“Their current project is out of contract,” Brennan said.

A factory that has shrunk over and over again

Foxconn’s deal was controversial from the start. The deal, which was backed by Mr. Trump and passed by former Republican Gov. Scott Walker, was approved. The deal provides $4.5 billion in taxpayer subsidies for companies, the largest ever for foreign companies. But the borrowings are “refundable,” meaning Wisconsin will pay companies a cash tax credit if it doesn’t owe taxes (which are almost impossible given Wisconsin’s corporate tax structure).

According to a study requested by the Evers government this year, if Foxconn keeps its promise to actually hire 13,000 workers, the subsidy for each job will be $172,000. By contrast, the study estimates that the subsidies Virginia pays for Amazon’s second headquarters are split equally to each position, at about $10,000 to $13,000.

But soon, it turned out that Foxconn was unlikely to hire as many workers, at least within the time frame set out in the contract. Even before Mr. Trump, Mr. Walker and Mr. Gou, the founder of Foxconn, attended the foundation-laying ceremony, the plant had begun to shrink. First, the plant was reduced from the original 10.5-generation LCD plant to a smaller 6-generation plant. Then, Foxconn told the media that the company had decided not to build the plant, only to restart the project two days after receiving a call from Trump. Since then, a variety of variables have continued to occur on the ground. But Foxconn’s last promise was to build a smaller 6-generation LCD plant, which would eventually employ just 1,500 people, a “smart manufacturing plant” and a data center for automated coffee kiosks. Overall, the new building covers just over 1 million square feet, a 20-tenth of the size originally planned.

However, such a plan also seems to be a dead end: experts point out that the current plant does not have the basic type needed to make LCD, while Foxconn, which previously said the 6-generation plant will be operational by 2020, has changed its tune to say LCD production could begin as early as 2022. The size of the plant is surprisingly small, even for the 6-generation plant. It now appears that such a small factory is also only part of LCD production, leading officials to think that the 6-generation plant is also a lie, rather than a multi-functional factory, as to what exactly is produced, no one knows.

“We know they’re not building a 10.5 factory at all. We also know that they are not building a 6-generation factory. So, what are they making? “Is there any demand for this plant?” asked Mr. Sintz, one of the board members of the WEDC board. What is the long-term outlook? “

The shrinking factories are bad news for Wisconsin. Given the incentive payment method used in the contract, if Foxconn builds a plant that is expensive but hires fewer people, the state will have to pay $290,000 per job, in some cases more than $500,000.

Wisconsin, however, also has weapons in its hands. The contract clearly describes the project as a 10.5-generation LCD plant. As a result, Foxconn’s subsidies are likely to be eliminated if other facilities are built. And when its subsidiary, Foxconn Industrial Connect (Fii), took over the Wisconsin project and submitted plans for manufacturing plants and data centers, Foxconn apparently deviated further from the original contract. The Foxconn entities covered in the contract do not include Fii.

Both sides seem to have reasons to change the contract: Wisconsin wants to make sure taxpayers don’t take risks for big subsidies, and Foxconn wants to make sure it gets them. In fact, it was Foxconn who first offered to change the contract, even though the company now insists it does not need to change the contract.

On March 11, 2019, Louis Woo, a special assistant to Foxconn founder Terry Gou, visited Wisconsin and met with Governor Evers and other state officials. According to a memo obtained by the media, Mr Hu confirmed that Foxconn would not build the 10.5-factory plant agreed in the contract. Instead, the company plans to build a smaller 6-generation plant that produces LCD screens for automotive and medical health, a manufacturing plant for the mainboard of production servers, perhaps a data center, and a medical facility. According to the memo, Mr Hu said the new plan would be significantly smaller, employing 1,500 people and requiring an investment of $2bn.

Mr. Hu also said Foxconn intends to revise the contract to reflect the new plan and include other Foxconn subsidiaries. Mark Hogan, WEDC’s chief executive at the time, told Mr Hu that the contract changes were not impossible, but would require a formal application process for WEDC. WEDC says it processes hundreds of similar contract revisions each year, especially when project budgets and scope changes occur, and contract revision applications need to be reviewed and approved.

However, by the time the april press conference, when Evers mentioned that the contract had to be modified, the Republican lawmakerwho who brokered the deal accused Evers of reneging on the contract. Foxconn issued only a vague statement saying it still supported the contract but was open to “new ideas”. In response, Evers issued an open letter stating that Hu Guohui was the first to propose a change in the contract and that, according to Evers’s own understanding, Foxconn should have submitted the necessary filings to WEDC in the coming weeks. Wisconsin is also identifying parts of the contract that need to be modified to “ensure greater flexibility and transparency in the development of the project,” Evers said. This seems to be the beginning of negotiations.

But that is not the case.

Never-before-seen contract modification proposal

On July 8th Evers wrote to Hogan reiterating his position that incentives were for much larger factories, which now need to be revisited. Hogan, a former Walker appointee and one of the original promoters of the Foxconn deal, said the contract was flexible enough to respond to Foxconn’s changing plans.

“The incentives given to Foxconn on an unprecedented scale under the initial contract were intended to create new manufacturing jobs and build a large 10.5-plant plant in Racine County as part of the project’s commitment. Since the development of the project has deviated significantly from what was originally proposed, evaluated, and agreed upon, it is now necessary to review the content of the project changes and assess how those changes can best benefit both parties,” Evers wrote. WEDC and my government department should conduct a thorough review and evaluation of the proposed changes to the Foxconn agreement or terms. “

The summer, however, has passed, but the changes proposed by Foxconn have never appeared. Instead, on July 25th Mr Hu wrote to Mr Hogan a three-paragraph message describing the “amazing progress” Foxconn has made, detailing the huge number of cement trucks used to pour the plant’s foundations and noting that Foxconn intends to report the progress of the 6-generation plant together when it applies for tax breaks at the end of the year. “I am writing in the hope that the Wisconsin Economic Development Corporation will be able to determine that the significant capital expenditures we have paid for the six foundrys in the EITM area will be included in the calculation of the capital investment tax credit,” Hu wrote.

Hogan forwarded Mr. Hu’s letter to Mr. Brennan, the executive director, who responded that the government took Mr. Hu’s request “very seriously” but that Foxconn would need to submit detailed plans for the changes it intended to make, which would then need to be decided by a vote. Hogan wrote a letter, which was sent to Hu And Brennan. In the letter, Mr. Hogan said he believed that revising the contract was the best way forward and that Mr. Hu was well aware of THE WEDC’s contract modification application process.

By the end of August, Foxconn has yet to submit any contract modificationproposals, even though the company has begun building cement walls for the six-generation plant. On August 23rd Brennan wrote another letter to Foxconn outlining the government’s three objectives: 1) foxconn should succeed; 2) Foxconn should understand that the current plan is beyond the terms of the 2017 contract; and 3) the government hopes to help Foxconn succeed in obtaining subsidies by working with Foxconn to modify the contract. In the final analysis, Foxconn is being urged to revise the contract.

Mr. Brennan wrote that Foxconn needed to take the next step. As with the 2017 deal, Foxconn should submit a detailed application for the project, including a detailed description of the project, expected cost, completion time, job type and job number forecast, production content, and so on. Eventually, Hogan resigned and the contract remained at a standstill. Evers then appointed Missy Hughes to replace Hogan as WEDC’s new chief executive. Foxconn’s Hu Guohui also resigned from the Wisconsin project supervision role due to injury, and Fii executive Li Jie took over.

After Brennan sent Foxconn a letter outlining the state’s goals, the two sides arranged a meeting scheduled for October 2019 in Madison. Although Fii was not included in the original contract, Fii’s role in the project has become increasingly significant at this time. By the time the October meeting, Fii announced that it would build a “smart manufacturing center” and a giant glass-ball-covered data center outside the 6-plant plant.

The October meeting will prove highly controversial.

Both sides of the word, the type of the factory is still a mystery

In a letter, Brennan summarized the October meeting, saying Foxconn acknowledged that the current project was different from what was described in the contract, that the company would not apply for subsidies and had no intention of applying to WEDC for a new contract or a modification of the original contract.

Such a summary has no doubt taken Foxconn by surprise. A few days later, Richard Vincent, Fii’s chief operating officer, sent a letter to Brennan accusing him of misdescribing the meeting. In fact, Vincent wrote, Foxconn believes that the 6-factory, a “smart manufacturing plant” or data center, can fulfill Foxconn’s contractual commitments, and that Foxconn “reserves” the “right” to apply for subsidies.

In a November 4 reply, Brennan said he did not believe there was any error in the description in the previous letter and that Foxconn’s current program was “not eligible for tax relief under Wisconsin law”, not only because the scope of the project was narrowed, but also because Fii was not part of the original contract. “Given that the weDC head has been replaced, we hope that Foxconn will reconsider and select the path i proposed with former WEDC Secretary and CEO Mark Hogan to work on your actual project and submit the documents necessary to apply for contract modification.” “

Later in October, two of Fii’s executives met Brennan and Hughes at WEDC’s Madison office, along with Mr. Yang. In a letter dated November 13, Hughes first thanked the Foxconn team for the 5G, automation and 8K image prospects presented, and went on to note that the meeting included “an open-minded formula discussion of the challenges of Foxconn’s incentive contracts with WEDC and Wisconsin.” Foxconn’s plan was inconsistent with the items agreed in the contract, she wrote, and that Fii was not a party to the contract. Hughes cautioned that since Fii was unable to receive subsidies for employment and investments until he was certified to WEDC, “Fii should file an application as soon as possible to qualify for tax relief.”

A few days later, Hughes visited the plant in Mount Pleasant. In a letter, she thanked foxconn again for saying foxconn should discuss the project.

“The previous correspondence between Governor Evers, Secretary Hogan and Secretary Brennan, as I wrote in the letter of November 13, is clear that Wisconsin wants to continue to support Foxconn’s investment in the state. To help your company succeed as quickly as possible with its new project in Mount Pleasant, I hope we can spend some time discussing how to maximize the alignment of Foxconn’s needs and expectations with those of the people of the state, WEDC, and Wisconsin,” Hughes wrote. Finally, she offered to visit Foxconn’s headquarters in Milwaukee.

But on the same day, Foxconn’s Yang Zhaolun wrote to Brennan in a very different tone. “Since 2018, Foxconn has been communicating with Wisconsin, in particular with Governor Evers, the executive branch, and WEDC, and has repeatedly stated Foxconn’s intention to build a 6-generation plant in Mount Pleasant,” Yang wrote. (Evers didn’t take office until 2019. “So we were shocked and disappointed when the administration and WEDC reiterated to us, verbally and in writing, that 6-factory does not qualify for tax credits. “

Mr. Yang went on to say that Foxconn had been “trying” to recruit people at universities around Wisconsin and find workers across the country, but low unemployment had made hiring a bad move. “Foxconn has invested millions of dollars in Wisconsin and is actively hiring job seekers, but the current administration is ignoring our efforts simply because of some of the substance of the contract, including overall capital investment and long-term job growth. “

“Discussing things that don’t matter is a waste of time and energy for all of us, because we really want to invest and create jobs for decades to come. Such disruptions will make job-seekers and job seekers wonder whether Wisconsin, under Governor Evers, really welcomes us to do business here. He concluded by writing that Foxconn “will evaluate all available options in connection with the WEDC contract.”

Four days later, Brennan responded to a more draconian letter, saying That Yang’s letter was untrue. First, He wrote, Evers didn’t take up the governorship until 2019, and second, Foxconn didn’t make its plans public in 2018 — in January, Mr. Hu told Reuters that Foxconn was not building a plant at all. However, Wisconsin has invested hundreds of millions of dollars in infrastructure, job training and other resources to support Foxconn’s projects, and the government has repeatedly encouraged Foxconn to apply for contract changes after he first floated the idea of a contract change on March 11.

Mr Brennan wrote that Foxconn should see the contract changes as a “positive option”. “Unless we jointly adjust the ‘reasonable size’ of the contract to accommodate new projects through the contract modification process, there will be risks of minimum redundancy limits, investment terms and subsidy recovery, to the detriment of Foxconn.” In addition, the state’s cost of incentivizing Foxconn to create new jobs is reasonable for the projects specified in the contract, but is so wasteful for new projects that Wisconsin simply cannot generate net income from it, leaving both sides at a disadvantage that is severely criticized by the state’s taxpayers. “

In response, Foxconn told the media that it believed the original contract was still valid and vaguely hinted that its work in Wisconsin might be suspended if a settlement could not be reached.

“We can confirm that the company is in discussions with Wisconsin regarding our commitment to the Wisconsin economy, employment and educational institutions that will have a significant impact on Wisconsin,” Foxconn said in a statement. Foxconn hopes that both sides can reach a solution that is acceptable to all so that we can move forward with the project, which is critical to our company and Wisconsin’s technology development. “

Ms. Hughes said she would continue to meet with Foxconn representatives, but had not yet received any proposed contract changes from the other side.

“I also stress that transparency and credibility are core values of WEDC and Wisconsin,” Hughes told reporters. Keep WEDC credible and transparent to the people of Wisconsin who invest. “

But while Wisconsin awaits Foxconn’s proposal, the type of plant being built remains a mystery.

“I’ve been asking you, who knows what this company will produce here when it opens in May?” “Unfortunately, no one knows. (Mulse)

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