No breakthrough at NAFTA talks, U.S. timeline could be in doubt

By David Lawder and David Ljunggren

WASHINGTON/OTTAWA (Reuters) - The United States, Mexico and Canada still have to resolve major issues around NAFTA, Canadian Foreign Minister Chrystia Freeland said on Friday, casting doubt that the quick deal sought by Washington would materialise.

Freeland met with U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo for several hours on Friday but made clear there was a lack of consensus on the North American Free Trade Agreement (NAFTA).

"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 told reporters outside the Washington building where the talks took place.

"We are going to keep on working until we get a good deal," she added, saying negotiations would continue at the level of officials.

Lighthizer, citing the need to reach a deal an agreement before the Mexican presidential election on July 1, says he wants the outlines of a deal soon to update the regional trade agreement.

A brief statement from Lighthizer's office said the talks had been positive and added that "we will continue working to achieve an agreement that benefits our three countries."

Mexico's economy ministry said the three countries agreed on Friday that their negotiating teams should press on with technical work in coming days and try to find "the balance that enables the process to move forward in its entirety."

Mexican business lobby CCE said in a statement that it would accompany the country's negotiating team.

"The continuation of the meetings is a positive sign, and there is a window of opportunity to advance substantially towards an agreement," Juan Pablo Castañón, president of the business lobby, said in the statement.

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 -- which Canadian and Mexican officials had initially suggested might happen at a regional summit in Peru next week -- 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.

Talks to modernize NAFTA started last August but have made little progress, prompting the United States to suggest at the end of the seventh formal round last month that the three nations aim in the first instance for a deal in principle.

The lack of clarity over the pact's future has hit the Canadian and Mexican currencies in recent months as well as worried 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 Sharay Angulo and Anthony Esposito in Mexico City, Matt Scuffham in Toronto; Editing by Leslie Adler and Sandra Maler)