(Adds quote from chief Mexican negotiator, details of talks, background)
MEXICO CITY, Nov 18 (Reuters) - Negotiations in Mexico to update NAFTA have not made much progress on tough U.S. demands that could sink the 1994 trade pact but the current round of talks are progressing with civility, a well-placed source said on Saturday.
Officials from the United States, Canada and Mexico are meeting in Mexico City for the fifth of seven planned rounds to update the North American Free Trade Agreement, which U.S. President Donald Trump has threatened to withdraw from.
Time is running short to seal a deal by the deadline of end-March 2018. Officials say next year's Mexican presidential election means talks after that date will not be possible.
The U.S. administration has made a series of demands that the other members say are unacceptable, such as a five-year "sunset" clause and tightening so-called rules of origin to boost the North American content of autos.
"It is very slow moving but there are no fireworks," said a Canadian source with knowledge of the talks, adding there had "not been much conversation at all" on the more contentious U.S. proposals.
Within hours of the latest round of talks formally starting on Friday, Canada was complaining about inflexibility by the United States.
Officials have so far discussed other issues such as labor, gender, intellectual property, energy and telecommunications but it is too soon to say whether there will be any breakthroughs this round, added the source.
"The atmosphere is fine, we are working well," chief Mexican negotiator Ken Smith told reporters. An official from one of the three nations told Reuters that the spirit behind the scenes was generally pleasant.
Though the mood is calmer than the tense scenes last month during the fourth round in Arlington, Virginia, the negotiations are now beyond the halfway point of an initial schedule with few clear signs of process.
Mexican officials hope chapters on telecommunications and e-commerce will be concluded by the end of business on Tuesday, but there has been no indication of this yet.
Although negotiators are scheduled to discuss rules of origin every day starting Saturday, the source said detailed talks on boosting North American content would not be held before the end of the round on Tuesday.
Canada and Mexico say the new rules of origin are unworkable and would damage the highly-integrated auto industry.
"I hope the United States understands there are things ... that Mexico won't accept, and (I hope) the negotiating process becomes more rational," Moises Kalach, head of the international negotiating arm of Mexico's CCE business lobby, told Reuters.
The U.S. Trade Representative's office on Friday revised its official objectives to conform to its current demands.
The move prompted U.S. Senator Ron Wyden, the top Democrat on the Senate Finance Committee, to remove a "hold" he had put in place to block the confirmation of two Trump administration nominees for deputy USTR positions, a Wyden aide said.
Wyden had complained the trade office was keeping members of Congress "in the dark". (Additional reporting by David Lawder, Dave Graham, Adriana Barrera and Noe Torres in Mexico City; Editing by Nick Zieminski and Alistair Bell)