U.S. rejects proposals to unblock NAFTA, will seek 'breakthroughs'

MONTREAL (Reuters) - U.S. President Donald Trump's trade chief rejected Canadian proposals for unblocking NAFTA modernization talks on Monday but pledged to seek "breakthroughs" by late February, easing concerns that Washington would soon withdraw from the trilateral pact.

Trump, who described the North American Free Trade Agreement as a disaster that has drained manufacturing jobs to Mexico, has frequently threatened to abandon it unless it can be renegotiated to bring back jobs to the United States.

U.S. Trade Representative Robert Lighthizer said after a sixth round of NAFTA negotiations in Montreal that Trump's views on the pact are unchanged, and cautioned that talks are still moving too slowly on U.S. priorities.

"We finally began to discuss the core issues, so this round was a step forward," Lighthizer said. "But we are progressing very slowly. We owe it to our citizens, who are operating in a state of uncertainty, to move much faster."

Lighthizer said he would work "very hard" toward "major breakthroughs" between now and the start of a nine-day stretch of talks in Mexico City scheduled for Feb. 26.

He said he has not considered pausing the talks for Mexico's presidential election due to launch on April 1, and progress over the next month would determine whether a deal would be "on a fairly short track or on a longer track."

He added that Trump would ask Congress to renew the administration's "fast track" trade negotiating authority, which expires at the end of June.

Lighthizer's Mexican and Canadian counterparts struck a more optimistic tone, saying that substantial progress was made in Montreal, with completion of a NAFTA chapter on anti-corruption.

Mexican Economy Minister Ildefonso Guajardo said enough progress was made for him to predict that chapters on telecoms and digital trade would be completed in Mexico City.

"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," Guajardo said.

Officials are now openly speculating that the bid to salvage the $1.2 trillion free-trade pact will continue well beyond an end-March deadline set to avoid Mexican presidential elections.

CANADIAN PROPOSALS DISMISSED

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 U.S. demands for reform on autos and dispute settlement.

But Lighthizer criticized Canadian proposals to meet U.S. demands for higher North American content in autos, saying they would in fact reduce regional autos jobs and allow more Chinese-made parts into vehicles produced in the region.

He also dismissed a suggestion on settling disputes between investors and member states as "unacceptable" and "a poison pill" and said a recent Canadian challenge against U.S. trade practices at the World Trade organization "constitutes a massive attack on all of our trade laws."

Canadian Foreign Minister Chrystia Freeland, who stood stony faced as Lighthizer made his remarks, later told reporters that "the negotiating process is ... always dramatic."

A Canadian government source, speaking on the condition of anonymity, noted Lighthizer had not speculated about withdrawal and said the U.S. official had been more positive in private than during previous rounds.

Officials said the negotiating teams had closed a chapter on anti-corruption measures and were close to wrapping up sections on telecommunications, sanitary measures for the agriculture industry and technical barriers to trade.

But the three sides are still far apart over U.S. demands to boost regional auto content requirements to 85 percent from the current 62.5 percent 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.

Critical comments by Trump, Lighthizer and others have unsettled markets that fret about the potential damage to a highly integrated North American economy if the United States gives six months' notice it is leaving.

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.

Although some officials have privately speculated about freezing the talks at the start of April, Guajardo told reporters that "we cannot afford to suspend this process."

(Writing by David Ljunggren; Additional reporting by Allison Lampert and David Ljunggren in Montreal; Editing by Nick Zieminski and Matthew Lewis)