NAFTA talks intensify; U.S. seen putting off key demand on autos

By David Ljunggren and Adriana Barrera

OTTAWA (Reuters) - Talks to update the North American Free Trade Agreement intensified on Saturday although U.S. negotiators looked set to once again withhold proposals for one of the Trump administration's most challenging issues.

Teams from the United States, Mexico and Canada kicked off the third of seven planned rounds of discussions in Ottawa amid warnings from trade experts that time was quickly running out to seal a deal by the end of the year as planned.

One key issue is the U.S. desire to strengthen rules of origin for autos, which dictate how much of a vehicle's components must originate from within North America to qualify for tax free status.

The American side did not mention a specific goal in the first two rounds and Canada's chief NAFTA negotiator on Saturday said he did not think the United States would provide more details during the Ottawa round.

"We're not expecting that, no," Steve Verheul told reporters, predicting the pace of the talks would nonetheless quicken.

According to a schedule of the talks obtained by Reuters, rules of origin will be discussed on Tuesday and Wednesday.

U.S. President Donald Trump wants more U.S. content in autos, citing trade deficits of $64 billion with Mexico and $11 billion with Canada. Trump, who says NAFTA is weighted against his country, has threatened to walk away from the agreement.

Flavio Volpe, president of the Canadian Automotive Parts Manufacturers' Association, said late on Friday he felt it was too early for detailed rule of origin proposals given that U.S. officials were still talking to the domestic industry.

"It's fine for us if they take a little longer so we all understand what our interests are and we make the right deal. We don't need an early deal," he said.

U.S. chief negotiator John Melle said ahead of the talks that his team would introduce the difficult provisions in Ottawa talks that are due to last for five days.

Another tricky issue is labor, given complaints from U.S. and Canadian unions that Mexico's low wages give it a manufacturing advantage.

The United States is also expected to present proposals on intellectual property and investment, sources with knowledge of discussions said. Other areas of disagreement include dispute settlement mechanisms.

Canadian and Mexican officials, as well as U.S. businesses, have already rejected a proposal by Washington to include a five-year sunset provision in the updated agreement, saying it added uncertainty to investment planning.

(Additional reporting by Alastair Sharp in Toronto; Editing by Marguerita Choy and Franklin Paul)