I know we're short on time, but there's momentum and there is traction on the topics that we're talking about. What Liz (Suarez) mentioned about USMCA, what Juan (Olaguibel) mentioned about the Anzalduas Bridge, I think this is very important information and I think maybe we're going to get a little bit longer for our meeting this time.
I've given an update on USMCA, and how it's going to impact our region in the automotive industry. Last week, I presented to COSTEP (Council for South Texas Economic Progress), they invited me. We had the San Luis Potosí Automotive Cluster here. Ralph (Garcia) was there, and I gave an update on USMCA.
Okay, it's very important to understand what's going on with USMCA right now, because this is critical for our region, and it ties in with what Juan (Olaquibel) and the Anzalduas Bridge is doing. Well, USMCA replaced NAFTA, as we know, on July 1, 2020. It runs for 16 years as compared to NAFTA. It (NAFTA) didn't have an expiration date, but it (USMCA) has an expiration date of 16 years, which will be June 30, 2036. But there is a sunset clause - and this is the hot item right now - that six years after the implementation, the USMCA has to be revised to see if they can extend it another 16 years or until 2052. That's what's going on right now.
As of now, both Mexico and Canada have submitted official notifications to request an extension of USMCA for another 16 years. Obviously, the US has not, as we know, so there are ongoing negotiations. If there's no agreement to extend it in 2026 it is not the end of the world, it's not that USMCA will end. It's until 2036, it is 16 years. But the extension period of 16 years… the idea is to approve it this year. If not, that's the issue. It's very likely that we're not going to get an extension agreement this year. There's going to be annual revisions (instead) every year up to 2036 or until the three countries agree to extend it, whichever comes first. So that's what's going on right now.
There are meetings this week in Washington. Obviously, they mentioned July 1 as a deadline, because July 1 was the implementation of USMCA. But, it's not going to happen, because there's meetings this week, and there's another meeting to be held in Mexico City on July 20, so that gives you a signal that July 1 is not a feasible day to come to terms. Okay, so we'll see what happens after July 20.
Like I said, there's going to be annual revisions if this doesn't happen, or they have to come to terms… each country has the right to withdraw, with a six month notice. If this happens, then they will have to negotiate bilateral agreements: US-Mexico, US-Canada, Canada-Mexico. I put here (on the slide) the scenario that this is unlikely, but that it is possible. And at this point, based on the comments that President Trump made, even yesterday, this is becoming more likely, but we'll see what happens. The consensus is that it will continue as a perlateral agreement, and that by the end of the year, or 2027 they're going to extend it, but for another 16 years, but there are going to be major changes.
The US is pushing for major changes, especially talking about trade and the rules of origin. They want to increase the regional value content, and in particular, US content. So, focusing on the automotive industry, which is vital for us here, there's a push by the United States to increase the regional value content for vehicles to 82%. We have it at 75% right now. But they're also asking that 50% of this 82% comes from US origin content. That requirement is not there yet, or where we have it at this time. But that's one of the things that the US wants to change to continue with USMCA. So, with this in mind, with the increase to 82% and with the threshold of 50% US content, well, what's going to happen with the automotive industry? This will force the OEMs and their suppliers to increase North American production of components, including production of components and automotive final assembly in the US.
Because of this, component manufacturers will have to consider establishing operations in the USMCA region, especially in the US, and this is one of the reasons why Valeo is here. Obviously, there are other reasons, technology restrictions and all that, because they're making the brains for the GM models. Or any model (for that matters); all the GPS, and all the technology has to be sourced from the US. So, that's one of the reasons why they placed the plant here in McAllen. But, you know this change in the original value content is going to push companies to consider what I call dual production, allowing flexible production, whereby they can make some components in Mexico, some components in the US, and vice versa, mix and match, so that they can comply with that regional value content.
So that's why our region, McAllen-South Texas, is critical for this, because our proximity to Mexico will allow for border crossing, and that's why Anzalduas Bridge is critical, because that's going to be our selling point for this dual production. Having that bridge CTPAT certified will allow fast crossing, efficient crossing, and the strategy of having dry goods and CTPAT goods companies cross there, I think is the right approach. Because this matches very well with what we want to do here. We have the qualified labor and competitive labor costs, as you know. There's plenty of industrial space and capacity, government incentives, and we have the logistics and transportation close by, to air and land, rail, and ocean ports. So we're in a good position. We're at the right place.
Even though there is uncertainty with the USMCA, it is very likely that it's going to continue. The rules will change, in particular in the automotive industry, but in a way it will be to our advantage, so we need to take this and run with it.
So, what's going to happen is this is going to create a shift in capital investment and new industrial capacity from logistics and warehousing to manufacturing, and that's what we are seeing right now, shifting from just warehousing and cross-box storage distribution to actually assembling and manufacturing. That's what we're seeing right now with Valeo. They are going to bring suppliers, and I know other companies are looking to the area. So, we need to promote our area very well, and that's pretty much what I have (for you today).
I made this presentation, like I said, last week, to the automotive cluster of San Luis Potosí. I was invited to a bank Tuesday. I made a presentation to a bank, a local bank, a regional bank, to the board because one of the executives called and said, ‘Jorge, I need you to present this to our lending officers, because we're getting a lot of inquiries from companies that want to invest in land and develop buildings and our board and the officers, they need to understand that.'
Editor's Note: The above commentary was provided by Jorge Torres, licensed customs broker and president and CEO of Interlink Trade Services, at a McAllen Economic Development Corporation quarterly stakeholders committee meeting.
