NAFTA ministers meet again, no major breakthroughs made

By David Lawder and David Ljunggren

WASHINGTON/OTTAWA (Reuters) - Top U.S., Mexican and Canadian trade officials need more time to work out how to update the North American Free Trade Agreement, Canadian Foreign Minister Chrystia Freeland said on Friday after a top-level meeting in Washington.

Freeland met with U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo for several hours amid pressure from Washington to quickly wrap up an agreement in principle.

But Freeland, speaking to reporters outside the building where Friday's talks took place, made clear there had been no major breakthroughs.

"We had some constructive conversations both yesterday and today, ... and that intensive pace of work, which has been happening over the last couple of weeks, will continue in the days to come," she said. "We are going to keep on working until we get a good deal."

Lighthizer, citing the need to avoid clashing with the Mexican presidential election on July 1, says he wants the outlines of a deal to update the regional trade agreement.

U.S. President Donald Trump, who has repeatedly threatened to walk away from the $1.2 trillion pact unless major changes are made, on Thursday said the three nations should have something to announce fairly soon.

Unveiling the outlines of a deal would allow leaders to claim a political victory while leaving officials to work out the precise details in the months to come.

It would also enable Trump and his trade team to focus on a widening trade dispute with China that could hurt the world's two biggest economies.

But there are major challenges to overcome, in particular a contentious U.S. demand that the North American content of vehicles made in NAFTA countries be increased to 85 percent from 62.5 percent.

"We continue to work in that area and to make some good progress and advances," said Freeland, who gave no details.

Insiders say the issue of automotive content has to be nailed down before an agreement in principle can be struck.

"We are dealing in black and white. You can't leave things grey," said one source with direct knowledge of the talks, citing the huge complexity of the industry.

"The last thing you want to do is to be making something that isn't compliant and to be told in an audit, 'You're not NAFTA compliant and you owe duties,'" said the source, who requested anonymity given the sensitivity of the situation.

The lack of clarity over the pact's future has hit the Canadian and Mexican currencies in recent months as well as worrying financial markets, which are on edge about possible damage to the highly integrated North American market.

The chief executive of Royal Bank of Canada, Dave McKay, on Friday said uncertainty over the pact was a concern for customers of the bank, Canada's biggest lender, but he remained hopeful a deal would be reached.

(Additional reporting by Lizbeth Diaz and Anthony Esposito in Mexico City, Matt Scuffham in Toronto; editing by G Crosse and Leslie Adler)