“Applied Materials has the largest U.S.-based manufacturing footprint among semiconductor equipment providers, and we have invested more than $400 million in our U.S. manufacturing footprint over the past five years—the majority of which is centered in Austin," a company spokesperson said in a statement. "Establishing a foreign-trade zone in Central Texas will give Applied significant operational efficiencies and make the equipment we build in Texas more competitive globally."
The setup
The FTZ program can reduce impacts of tariffs and U.S. Customs fees in designated areas by treating some domestic business operations as if they were offshore, reducing costs that otherwise would be shouldered when importing or exporting goods. Products within FTZs can also be exempted from local or state taxes.
Several companies with an area presence like Samsung Austin Semiconductor and Flex already use the FTZ program. A regional trade zone formed in the 1990s in response to the local tech boom is also in place to work with businesses, local governments, economic entities and federal agencies on the program.
Ben Ramirez, administrator of the Foreign Trade Zone of Central Texas, said businesses using FTZs can avoid tariffs on goods entering or leaving major ports, and eliminate the need to seek often lengthy federal reimbursements for those charges.
"When the companies are able to alleviate some of the cash flow of not having to pay import duties when the goods that they’re bringing in reach the Port of Houston, for instance ... you bring [products] to your site, you add value, and then if you ship it out of America to your end customers in some other country then you’re avoiding having to have paid that import duty," he said. "That frees up cash for investments at the site or additional locations in the area as well, and the ability to pay your employees more. So you’ve got more flexibility."
Zooming in
More companies doing business around Austin are now seeking the designation, in part due to national trade updates that began earlier this year and have continued since then.
"The Foreign Trade Zone Capital Trade Initiative (FTZCTI) saw an increase in local company inquiries from late March through July after federal adjustments to tariffs on imported goods," said Carlos Soto, a spokesperson for Austin's Economic Development Department, in an email.
A regional survey conducted this spring by the Austin Regional Manufacturers Association found widespread negative sentiments among Austin-area manufacturers about those tariff policies, including lowered financial and hiring outlooks.
Ramirez noted that although the trade zone process can be a hurdle given its costs—thousands of dollars in annual fees—interest in the FTZ program "increased tremendously" due to federal tariff adjustments this year.
"I’ve been involved with the Foreign Trade Zone here locally since 2008 in various capacities, and just the sheer volume that we had at the end of March all the way through the end of July was unprecedented," he said.
The specifics
Technology component manufacturer Venkel Ltd. started its pursuit of an FTZ designation for its West Austin facility several months ago, which city officials backed up in July.
Applied Materials first sought the designation for its Pflugerville facility this summer, and the company is now looking to add more than a dozen of its sites around Austin under the FTZ program. City Council members voted in support of that process Sept. 25 by authorizing the city to submit a letter about the designation to the Foreign Trade Board.
"FTZ requests are evaluated for alignment with city policy, potential economic impact, and compliance with federal FTZ regulations. Applied Materials’ proposal fit these criteria and supports local needs," Soto said about the decision to advance the letter.
The Venkel designation was expected to cost roughly $9,400 in annual tax revenue while the Applied Materials FTZs could total $119,000 per year, according to city documents. Neither Austin or the Travis Central Appraisal District had information about the tax impacts of other active FTZs in the city.
What's next
For now, the city isn't tracking any additional new trade zone applications in Austin. Others could still be in the works elsewhere in Central Texas.
Ramirez said the limited program may still draw more interest, although some companies have held off on a decision amid tariff uncertainty. He also said the shifting policies leading to a flood of applications nationwide have slowed federal reviews of FTZs, both due to that volume and increased scrutiny of the requests.
"With all these companies flocking to get their site activated, I had to tell them that what used to be a six- to eight-month process is now maybe a 12-month process," he said. "It’s not something that you’re going to get rapid relief from these tariffs either. So a lot of companies are thinking, ‘Well we’ll just wait it out and see what happens with the Trump administration tariff situation.'"
