By David Ljunggren
OTTAWA, April 3 (Reuters) - The United States, Canada and Mexico could soon announce a deal in principle to update NAFTA that would likely tackle the key issue of autos content while leaving other contentious chapters to be dealt with later, three sources familiar with the matter said on Tuesday.
After more than eight months of slow-moving talks to update the North American Free Trade Agreement (NAFTA), Washington is keen to settle the process quickly, citing the need to finish before Mexico's July 1 presidential election. ministers in charge of the talks are due to meet in Washington this week. If all goes well, the leaders of the three nations could make an announcement about progress on an updated NAFTA at a regional summit in Peru next week, Mexican Economy Minister Ildefonso Guajardo said on Monday. sources agreed with that assessment on Tuesday, emphasizing that negotiators were focusing on the so called "rules of origin" issue which relates mostly to the auto sector.
"What they're looking to do is 'Let's hammer out as much as we can, with the specific focus on automotive, and if we can declare an agreement in principle in Lima that's a good moment for everybody'," said one of the sources.
Guajardo said the three nations had made significant advances, adding that the Washington meeting of ministers would determine the scope to agree on the basics of an agreement.
The challenge is that a deal in principle might well be so vague on areas of disagreement that negotiators would be faced with many more months of very challenging work with no guarantee of success at the end.
The sources, who requested anonymity given the sensitivity of the situation, said the three nations had made progress on a U.S. demand that the North American content of vehicles made in NAFTA nations increase to 85 percent from 62.5 percent.
U.S. Trade Representative Robert Lighthizer said last week he was "optimistic that we can get something done in principle in the next little bit".
But Canada's chief negotiator, speaking the same day, said "significant gaps" remained on many issues, citing the U.S. positions on dispute settlement, government procurement and a sunset clause that would allow one country to quit NAFTA after five years. sources said the U.S. administration -- gearing up for a possible trade war with China -- did not want to be distracted by NAFTA at the same time.
"If they don't do the dispute resolution ... or agriculture, I don't think it precludes them declaring victory in the parts they have (in hand)," said the first source.
The sources spoke as U.S. President Donald Trump threatened yet again to walk away from the deal, saying Mexico needed to crack down on migrants crossing the border. Canadian source familiar with government thinking said it was hard to predict what the meeting in Washington this week could achieve.
"These are complex and technical negotiations that encompass a huge number of issues. I think we all agreed to be a little bit realistic ... the important thing is that there is momentum towards meeting," said the source.
Mexican chief negotiator Kenneth Smith tweeted on Tuesday that "it will be the substance of the negotiation that drives any potential conclusion". (With additional reporting by Steve Holland in Washington; Editing by Christian Plumb)