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NAFTA dispute resolution mechanism critical -Canada

OTTAWA, July 18 (Reuters) - Canada believes it is critical for NAFTA to have a dispute resolution mechanism, a senior official said on Tuesday, setting up a potential clash with Washington when talks to renegotiate the pact begin.

The United States on Monday released its goals for the talks, which aim to update an agreement that came into force in 1994.

These include a desire to ditch the Chapter 19 dispute settlement mechanism that has hindered the United States from pursuing anti-dumping and anti-subsidy cases against Mexican and Canadian firms.

"There are may things they raised where we take quite a different position. We think it's critical to have some kind of a dispute resolution mechanism incorporated - it was in 1994 and it continues to be," said David MacNaughton, Canada's ambassador to Washington.

"Whether or not ... (it) can be improved or modernized, I think we're up for discussion on that," he said in televised remarks to reporters in Edmonton, Alberta.

Under Chapter 19, which Canada insisted be in NAFTA, binational panels hear complaints about illegal subsidies and dumping and then issue binding decisions. The United States has frequently lost such cases.

MacNaughton said he was not particularly surprised by the list of U.S. demands, many of which had been flagged ahead of time by the administration of President Donald Trump.

Both Mexico and the United States face important elections in 2018 which could complicate the negotiations.

Mexico says it would make sense to wrap up the talks by the end of this year, a goal Canadian officials say privately is impossible if the agreement is to be properly updated.

"Obviously if we could get a clarification of the trading relationship sooner rather than later it would be better, but having said that, we're not going to rush into a bad deal," said MacNaughton.

The envoy also said Canada would continue to defend its system of tariffs and quotas that keep domestic dairy prices high and imports low.

The U.S. dairy lobby is ratcheting up the pressure on Canada as the NAFTA talks draw closer, demanding concessions the Canadian government looks unwilling to grant. (Reporting by David Ljunggren; Editing by Andrew Hay)