Canada, Mexico to rebuff U.S. over NAFTA goals as talks bog down

By Sharay Angulo and Ana Isabel Martinez

MEXICO CITY (Reuters) - Canada and Mexico will rebuff the United States over its demand for tougher NAFTA automotive content rules, top officials said on Monday as negotiations to renew the treaty bogged down with only a few months to go.

U.S. President Donald Trump is threatening to quit NAFTA, which has reshaped the continent's auto sector over the past 23 years, unless major changes can be made to return manufacturing jobs to the United States.

Canadian and Mexican negotiators will address the U.S. auto demands on Tuesday, the final day of the fifth round of talks to update the North American Free Trade Agreement, chief Mexican negotiator Ken Smith told reporters.

Although the talks are due to wrap up in March 2018 after a seventh and final round, they are deadlocked over a series of hard-line proposals the United States unveiled at the fourth round last month.

"It's definitely slowed down from the previous round," said a Canadian source with direct knowledge of the talks. "There has been no progress in the contentious chapters."

Canadian and Mexican officials have complained repeatedly about what they see as U.S. inflexibility. A spokeswoman for the U.S. Trade Representative declined to comment.

Negotiators say they need to finish their work before campaigning for Mexico's presidential election formally begins at the end of March.

The campaign team for the leftist former mayor of Mexico City and early front-runner, Andres Manuel Lopez Obrador, on Monday repeated calls for the NAFTA talks to be postponed until after the July presidential vote.

The Canadian source said the sixth round would be held in Montreal at the end of January 2018.

Mexico and Canada fear Trump will follow through on a promise to pull out of NAFTA, causing disruption and economic damage. The Canadian dollar edged lower against its U.S. counterpart on Monday, in part because of concerns about the negotiations.

Alarmed U.S. politicians and industry groups have started to put concerted pressure on the White House not to take drastic moves they say would cause job losses.

"Support for NAFTA from the American private sector, and also members of Congress, and even Republican governors, is starting to get very vocal, which we view very positively," said Moises Kalach, head of the international negotiating arm of Mexico's CCE business lobby.

Jeff Leal, farm minister for the powerful Canadian province of Ontario, said in an interview he believed the increasingly vocal U.S. protests would help those who wanted to keep NAFTA.

FRICTION OVER AUTO CONTENT STANDARDS

Canada and Mexico are particularly unhappy about the U.S. push for tougher autos content. Vehicles and auto parts account for most of the $64 billion U.S. trade deficit with Mexico, a sore spot for Trump.

The Trump administration wants half of the content of all North American-built autos be produced in the United States and that the regional vehicle content requirement be increased to 85 percent from 62.5 percent.

Canada and Mexico dismiss the idea as unworkable and plan to respond with presentations on how such a move would damage the North American auto industry, people briefed on the talks said.

A Mexican auto industry representative with knowledge of the talks called the U.S. proposal "insane" on Sunday.

"There is no product made in North America that meets this rule of origin requirement," said Matt Blunt, president of the American Automotive Policy Council, which represents Ford Motor Co , General Motors Co and Fiat Chrysler .

In San Antonio, Texas, a senior U.S. official told a Senate panel that the administration wanted to rebalance the large automotive trade deficit with Mexico.

(Additional reporting by David Ljunggren, David Lawder, Dave Graham and Anthony Esposito in Mexico City and Fergal Smith in Toronto; Writing by David Lawder and David Ljunggren; Editing by Cynthia Osterman and Lisa Von Ahn)