UPDATE 2-U.S. unveils NAFTA autos content proposal, fate of talks unclear

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WASHINGTON, Oct 13 (Reuters) - The United States on Friday unveiled hotly contested proposals for higher regional autos content in the North American Free Trade Agreement, three sources said, casting further doubt on the chances of reaching a deal to modernize the pact.

Washington made its move a day after insisting that NAFTA contain a sunset clause that could mean the deal expires in five years.

Canada and Mexico, the two other members of the pact, strongly oppose both ideas. A Mexican source with direct knowledge of the talks called the auto content proposal "absurd."

Sources familiar with the talks say the mood is bad and question whether the negotiations can be wrapped up by the end of the year as planned.

President Donald Trump, who complains that NAFTA has been a disaster for the United States, is threatening to walk away from the deal unless major changes are made.

The U.S. side made its auto proposal during the fourth of seven planned rounds of talks on the treaty. Ensuring that autos need more regional content to qualify for NAFTA tariff-free access is one of the Trump administration's key demands.

Canada and Mexico say such a move would disrupt the highly integrated continental auto industry.

One of the sources said the United States wants to increase the North American content requirement for trucks, autos and large engines to 85 percent from 62.5 percent. Furthermore, Washington insists 50 percent of content must be U.S.-made.

Trump administration officials say current content rules are too lax and have allowed auto companies to bring in too many cheap parts from China and other low-wage Asian countries. They are also seeking to halt the migration of vehicle production and manufacturing jobs to Mexico from the United States.

Auto industry groups say substantially increasing local content requirements would raise costs, hurt regional competitiveness and cause many companies to forego NAFTA's benefits and simply pay the 2.5 percent U.S. tariff for imported cars and many parts.

Trump has made no secret that he prefers bilateral trade deals, and skeptics wonder whether the U.S. demands are part of a strategy designed to ensure the current talks fail.

The U.S. Chamber of Commerce had listed the U.S. autos demands among a number of "poison pill" proposals that it said would torpedo the talks. 1/2nL4N1ML4JW 3/8

Canadian Prime Minister Justin Trudeau met Mexican President Enrique Pena Nieto on Thursday for talks, and later said Canada would not walk away from the table. Both men said they were committed to a "win-win-win" deal.

Canadian officials say it is too soon to write off the talks. U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo are due to meet in Washington on Tuesday to take stock of the negotiations.

Other people briefed on the talks told Reuters that the U.S. autos proposal would require automakers to verify the use of North American steel, aluminum, copper and plastic resins in their vehicles.

A spokeswoman for Lighthizer declined to comment. Canadian and Mexican government officials were not immediately available for comment. (Additional reporting by David Lawder and Ana Isabel Martinez; Editing by Bernadette Baum, Marguerita Choy and Jonathan Oatis)