By Dave Graham and Lesley Wroughton

 

MEXICO CITY (Reuters) - Mexico's trade minister will discuss the threat of U.S. steel import tariffs with U.S. Commerce Secretary Wilbur Ross on Wednesday, two sources said, adding to trade tensions during the latest push to renegotiate the NAFTA trade deal.

 

The meeting in Washington between Economy Minister Ildefonso Guajardo, who oversees trade, and Ross comes as U.S., Mexican and Canadian officials meet in Mexico City for a seventh round of negotiations to rework the North American Free Trade Agreement.

 

In President Donald Trump's trade policy agenda presented to Congress on Wednesday, U.S. trade envoy, Robert Lighthizer, pledged the administration would continue to renegotiate NAFTA as part of efforts to seek fairer, more reciprocal trade.

 

The NAFTA talks have crawled along for the past six months, though officials say a number of less controversial issues under discussion could be resolved in this round. Trump has threatened to walk away from the $1.2 trillion treaty unless major changes are made.

 

Trump is currently considering Commerce Department proposals to impose steel and aluminum tariffs on imports from China and elsewhere following a probe looking at whether imports of the metals threatened U.S. national security.

A Mexican official said the agenda would include the proposed steel tariffs as well as the tomatoes trade, another area that has been dogged by disputes and subject to periodic renegotiation.

If the United States imposed steel tariffs, Mexico's government would seek to retaliate, the official said - just as it vowed last month to act against a decision by Washington to slap tariffs on imported washing machines and solar panels.

Trump authorized the investigations in April after U.S. steel and aluminum manufacturers complained they were being forced out of business due to excessive foreign dumping.

The Commerce Department confirmed the talks but did not elaborate on what topics would be discussed. Ross has said he would not be surprised to see countries challenge any steel tariffs at the World Trade Organization.

A statement will be issued after the Washington talks, a Mexican official said.

Among the options before Trump is a tariff of at least 24 percent on steel products from all countries. However, Trump could decide to exempt some countries from any measures, including its NAFTA trading partners.

Canada's Prime Minister Justin Trudeau said in July that Trump told him that he did not expect to subject Canadian steel and aluminum to tariffs on national security grounds.

There are concerns that stiff U.S. tariffs could raise global steel prices, which would impact Mexico. While Mexico is a large steel importer, it also exported approximately 4.5 million tonnes in 2016.

Meanwhile, Steve Verheul, Canada's chief negotiator in the NAFTA talks, reported some advances in Mexico City.

"We're making reasonably good progress so far," he told journalists, without elaborating.

'HARD TO ACHIEVE'

U.S. trade officials met with auto industry executives in Washington on Tuesday to discuss a contentious U.S. demand for higher content for vehicles produced in North America, which NAFTA partners Canada and Mexico say will be hard to achieve.

There were no major breakthroughs or policy changes discussed, one source with knowledge of the meetings said.

The U.S. negotiator handling the autos content file, Jason Bernstein, unexpectedly returned to Washington for consultations earlier this week. It was unclear whether or when he would return to Mexico City.

Verheul later said chief negotiators would on Wednesday discuss rules of origin, which includes content requirements for finished products made in North America.

One official with knowledge of the talks said given Bernstein's absence it was unclear whether there would be time in the current round to deal with technical discussions on moving the autos content debate forward.

The possible delay in tackling the matter only underlines the slow progress of the talks, which are supposed to wrap up by early April but look set to go on for longer.

Lighthizer, Guajardo and Canadian Foreign Minister Chrystia Freeland are due to join the negotiations for the final day on Monday.

The current round is likely to focus on closing chapters related to digital trade, telecommunications, technical barriers to trade, good regulatory practices, and sanitary and phytosanitary measures, according to a second official with knowledge of the talks.

(Additional reporting by Sharay Angulo and David Ljunggren in Mexico City; Editing by Cynthia Osterman and Susan Thomas)