WASHINGTONWASHINGTON Aug 21 (Reuters) - U.S. and Mexican trade ministers were set to resume talks over the North American Free Trade Agreement in Washington on Tuesday in a final push for a deal on autos that would open the door for Canada to return to negotiations this week.

If Mexican Economy Minister Ildefonso Guajardo and U.S. Trade Representative Robert Lighthizer can resolve remaining bilateral issues, "the plan is to try to incorporate Canada into the discussions," possibly as early as Thursday, said a Mexican source close to the talks.

Though NAFTA is a trilateral trade deal, "there are issues that are really bilateral issues between Mexico and the United States," said the source. In rules of origin for autos "Mexico clearly had to look for flexibilities because Canada was relatively comfortable with the original (U.S.) proposal."

ADVERTISEMENT

In the meantime, Canada has remained sidelined from the talks.

"We are making progress in the chapters that will modernize our agreement, and Mexico will continue working constructively on all fronts," Mexico's chief NAFTA negotiator Kenneth Smith said on Twitter on Tuesday.

The United States and Mexico are close to a deal to increase North American automotive content thresholds, with substantial requirements for content produced in high-wage areas, namely the United States and Canada, said the source.

The deal is expected to lift the requirement for North American content in regionally made vehicles to at least 70 percent from the current 62.5 percent. It will also likely require that some 40 percent of the value come from high-wage locations paying at least $16 an hour, meaning the United States and Canada.

Mexican and U.S. negotiators were also close to agreeing on a 5-year phase-in period for implementing the changes in the auto industry, the source said.

Still, foreign-brand automakers with U.S. plants oppose the move to raise the amount of local content in North American-made vehicles and could throw a monkey wrench in negotiators' plans to secure a bilateral deal this week.

ADVERTISEMENT

The carmakers, including Toyota Motor Corp, Volkswagen AG and Hyundai Motor Co, sent a letter to top trade-focused members of U.S. Congress expressing their concern.

The letter could spark resistance to a revamped NAFTA from lawmakers in southern states, where foreign manufacturers have built auto plants.

U.S. President Donald Trump, who launched the renegotiation of the 1994 pact a year ago, has said he wants the reworked deal to bring manufacturing jobs back to the United States, particularly in autos and auto parts.

Other key unresolved issues include the dispute settlement mechanism and a U.S. demand for a "sunset" clause that forces a renegotiation every five years, which critics argue would make long-term investment decisions more difficult.

Guajardo last month expressed hope that there could be a preliminary NAFTA deal by the end of August, but he has since appeared to pull back from that position. (Reporting by David Lawder and Sharay Angulo Writing & additional reporting by Anthony Esposito in Mexico City Editing by James Dalgleish)