NAFTA negotiators still divided, but cite progress in talks

By David Ljunggren and David Lawder

MONTREAL (Reuters) - The United States, Canada and Mexico said they had made progress in the latest round of talks to renegotiate the North America Free Trade Agreement, although the American representative complained progress was still very slow.

United States Trade Representative Robert Lighthizer said the pace of the NAFTA negotiations had to pick up speed and demanded progress before the next round in Mexico City in late February.

U.S. President Donald Trump, who has described the 1994 pact as a disaster that has cost manufacturing jobs, frequently threatens to announce he is withdrawing from the deal unless major changes are made.

His comments have unsettled markets that fret about the potential damage to a highly integrated North American economy.

"We finally began to discuss the core issues, so this round was a step forward. But we are progressing very slowly," Lighthizer told reporters at the end of the week-long round of talks in Montreal.

Officials are now openly speculating that the bid to salvage the $1.2-trillion free trade pact will continue well beyond the original March deadline as elections loom in Mexico.

The Mexican round next month is an extra set of talks that officials added to help tackle the many remaining challenges. Negotiators are supposed to finish in Washington in March with the eighth and final round.

Heading into Montreal last week, some officials had feared the United States might be prepared to pull the plug on the pact amid frustration over slow progress.

The mood lightened after Canada presented a series of suggested compromises to address the main U.S. demands for reform.

"For the next round, we will still have substantial challenges to overcome. Yet the progress made so far puts us on the right track to create landing zones to conclude the negotiation soon," said Mexican Economy Minister Ildefonso Guajardo.

Lighthizer, though, criticized Canadian proposals to meet U.S. demands for higher North American content in autos.

The ideas "may actually lead to less regional content than we have now, fewer jobs in the United States, Canada and likely Mexico. So this is the opposite of what we are trying to do," he said.

The three sides are still far apart over U.S. demands to boost regional auto content requirements and require 50 percent U.S. content in North American-built vehicles.

Other challenges are Washington's demands that NAFTA largely eliminate trade and investment dispute-settlement systems and contain a "sunset" clause to force renegotiations every five years.

(Writing by David Ljunggren; Editing by Bernadette Baum and Nick Zieminski)