U.S. pushes NAFTA talks pace, warns of political headwinds

By Lesley Wroughton and Sharay Angulo

MEXICO CITY (Reuters) - Mexican and U.S. officials pushed on Monday to speed up NAFTA negotiations, with the United States floating the idea of reaching an agreement "in principle" in coming weeks to avoid political headwinds later this year.

U.S. Trade Representative Robert Lighthizer, showing impatience at the slow pace of the talks, said Mexico's presidential election and the looming expiry of a congressional negotiating authorization in July put the onus on the United States, Mexico and Canada to come up with a plan soon.

"We probably have a month, or a month and a half, or something to get an agreement in principle," Lighthizer told reporters at the conclusion of a seventh round of talks to overhaul the North American Free Trade Agreement in Mexico City.

He was speaking after meeting Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland for a joint event marked by a more cordial mood than in previous rounds, despite major disagreements over U.S. President Donald Trump's plan to impose steel tariffs.

Trump has threatened to dump NAFTA unless it boosts U.S. manufacturing and employment, arguing the 1994 accord has caused the migration of jobs and factories southward to lower-cost Mexico.

Guajardo told reporters the three countries aimed to hold lower-level discussions on NAFTA over the next five weeks before an eighth round, probably in early April.

During that period, he and his two counterparts also aimed to meet to narrow differences on the most complex issues in the talks, which include agreeing on new auto content rules, a dispute-resolution mechanism and agricultural market access.

Lighthizer said time to rework the deal was running "very short" and again raised the possibility of the United States pursuing bilateral deals with its partners - albeit stressing that his government would prefer a three-way agreement.

He said the United States was making more headway with its southern neighbor than with Canada.

Freeland declined to give details on a prospective timeline for the next round and said alongside Lighthizer that Trump's plan to impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports was "unacceptable".

The U.S. trade promotion authority, or TPA, is authorized by Congress and is needed to implement legislation for new trade agreements such as the renegotiation of NAFTA. The TPA expires on July 1 and analysts expect it to be extended.

The United States also holds congressional elections in November.

TARIFF EXEMPTION LURE

Early on Monday, the U.S. president ratcheted up tension before the ministerial meetings in Mexico by tweeting that "Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed."

Lighthizer said that meant Canada and Mexico would enjoy tariff exemptions once a NAFTA deal was reached, calling the tariffs an "incentive" to conclude the talks.

Canada and Mexico say they should be exempted from such moves, and have warned they could retaliate.

Guajardo said there would be no concessions made in the NAFTA negotiations to placate Trump on steel and aluminum, while Freeland said the two issues were separate.

Guajardo urged all sides, however, to avoid a trade war and said Mexico would wait for a U.S. decision. If the United States did impose tariffs, a response should be tailored to the sector in question to avoid complicating other issues, he added.

"Contaminating strategies just ends up making you escalate the nature of the conflicts," Guajardo said.

Talks to overhaul the 24-year-old pact are moving slowly, in part because Canada and Mexico have resisted U.S. demands to boost the North American content of autos produced inside NAFTA.

When asked about the discussions on the rules of origin for autos, Guajardo noted that no trade deal could depend only on the interests of one particular sector.

Although Mexico holds its election in July, it will not change governments until December, and Guajardo pledged to keep negotiating for as "as long as necessary" while President Enrique Pena Nieto's administration is in office.

Lighthizer said only six chapters had been concluded since talks began in August. Negotiators are working on 30 chapters overall, he said, including a new one on energy.

Uncertainty over the talks, and the potential for a wider global trade war, are making investors nervous.

During the latest round, negotiators concluded talks on rules governing food safety and animal health, good regulatory practices, plus administration and publication, officials said.

(Additional reporting by David Ljunggren, Dave Graham, Adriana Barrera and Anthony Esposito in Mexico City and Fergal Smith in Toronto; Writing by Lesley Wroughton and David Ljunggren; Editing by Paul Simao and Peter Cooney)