UPDATE 1-U.S. trade officials meet auto executives amid latest NAFTA push

(Adds comments by Mexico chief negotiator, Mexican industry head)

WASHINGTON/MEXICO CITY, Feb 27 (Reuters) - U.S. trade officials were meeting auto industry executives in Washington on Tuesday, three sources said, as NAFTA trade talks try to make progress on a major sticking point around vehicle production.

The U.S. negotiator handling 'rules of origin' over where car and truck parts are made, Jason Bernstein, unexpectedly returned to Washington for consultations with the auto giants, soon after the seventh round of talks to renegotiate the North American Free Trade Agreement began in Mexico City.

Three people familiar with the matter said representatives from the office of U.S. Trade Representative (USTR) Robert Lighthizer would hold separate meetings with executives from Ford and General Motors on Tuesday afternoon.

USTR declined to comment.

Ford said in a statement it had an ongoing dialogue about the importance of NAFTA with the government, with an emphasis on enforceable rules prohibiting currency manipulation.

A GM spokesman said: "These regular meetings with USTR happen in the context of any major trade agreement to assure that GM's point of view is heard."

Time is running out to agree a new NAFTA before a Mexican presidential vote and U.S. mid-term congressional elections later this year, and the administration of U.S. President Donald Trump has put forward an aggressive set of proposals that are complicating progress.

Among those proposals is a demand that seeks to guarantee the United States more of the automotive business, and impose far tougher rules of origin requirements for the industry.

Officials have said they do not expect a major breakthrough on the auto demands this round, though some in attendance were encouraged by the signs of greater U.S. discussion of rules of origin, even if that part of the round is now on hold.

Kenneth Smith, Mexico's chief NAFTA negotiator, said he hoped Bernstein would return to Mexico City, where rules of origin discussions were meant to last from Sunday to Tuesday.

"Hopefully these consultations are positive," Smith told reporters, referring to the industry talks in Washington.

Smith said there had been "a lot of progress" on other NAFTA chapters involving telecommunications, digital commerce, technical barriers to trade and regulatory practices.


Mexico's economy minister had said the country could put forward its own automotive proposal at the round, but he is facing resistance from the industry to give any ground.

Eduardo Solis, the head of Mexico's automotive industry association (AMIA), told reporters at the talks there was no fresh Mexican proposal and reiterated his longstanding position that the rules of origin in the original NAFTA be maintained.

"All there is is the original U.S. proposal, which we've said is totally unacceptable," Solis said.

Under NAFTA, 62.5 percent of the net cost of a passenger car or light truck must originate in the NAFTA region to avoid tariffs. Trump wants the threshold raised to 85 percent and is also seeking to ensure half the total content is from the United States.

The demand reflects Trump's belief that trade with Mexico and Canada is hurting U.S. jobs and factories.

Trump has repeatedly threatened to pull out of NAFTA unless the deal can be reworked in a way that favors the United States.

The U.S. president said in Washington on Monday that his country was probably losing "$130 billion a year" to Mexico.

"For years, I've been saying ... (it is) $71 billion, but it's really not," Trump said, adding that the United States also loses "a lot" with Canada. "People don't know it. Canada is very smooth. They have you believe that it's wonderful. And it is for them. Not wonderful for us," he added.

U.S. data show the country's 2017 trade deficit in goods with Mexico was $71.1 billion and $17.6 billion with Canada.

Critics of Trump's stance say the deficit reflects robust U.S. consumption, not unfair trade.

It was unclear how Tuesday's U.S. automotive discussions might affect the debate on rules of origin, but the people briefed on the matter did not expect a major change in position.

If USTR was going to announce a radical shift on the rules, the auto companies believe the meetings would be held at CEO level, according to two of the people familiar with the matter.

Solis said automakers were still evaluating ideas put forward by Canada to include newer technology in the calculation of a vehicle's value, and that innovations such as hybrid and electric cars could end up with different rules because they were not contemplated in the initial accord.

The auto industry has opposed Trump's demands on increased content, arguing it will disrupt supply chains and raise costs. Mexican officials say the issue must largely be resolved between the White House and U.S.-based industry bosses. (Additional reporting by Noe Torres, Anthony Esposito and Sharay Angulo in Mexico City Editing by Dave Graham and Rosalba O'Brien)