By David Lawder and David Ljunggren
WASHINGTON/OTTAWA (Reuters) - Canada heads into talks in Washington on Wednesday to renew NAFTA determined not to back down on key issues despite threats from U.S. President Donald Trump to retaliate against the Canadian economy unless Ottawa gives ground quickly.
Trump, fresh from wrapping up a side deal last week with Mexico, the third member of the North American Free Trade Agreement, has said he is ready to slap auto tariffs on Canada or exclude the country from the pact altogether.
The president says the 1994 pact - which underpins $1.2 trillion in annual trade - caused hundreds of thousands of manufacturing jobs to leave the United States.
The Trump administration, eager for an agreement to be signed soon, wants to scrap a dispute-resolution mechanism that Canadian Prime Minister Justin Trudeau says is crucial.
The two sides, which failed to settle their differences last week, are also arguing over U.S. demands for more access to Canada's closed dairy market.
Trudeau said on Tuesday: "There are a number of things we absolutely must see in a renegotiated NAFTA," and reiterated he would not sign a bad deal.
Trump notified Congress that he intended to sign the agreement by the end of November and officials said the text would be published by around Oct. 1.
But Canadian officials, who note increasing political pressure on Trump from U.S. business and labor circles to keep NAFTA as a trilateral arrangement, said they were in no hurry.
"We're not saying we don't want to move swiftly to try and get a deal. But I think certainly we were always intending to take as long as it was going to take," said a government source, who declined to be identified given the sensitivity of the situation.
"We're seeing goodwill on all sides and if we see some more flexibility, then I think we can start to see things moving in a good direction," added the source.
Negotiators have blown through several deadlines since the talks started in August 2017. As the process grinds on, some in Washington insist Trump cannot pull out of NAFTA without the approval of Congress.
"Trump is relying on bluster and bullying in a desperate attempt to get Congress to swallow his half-baked deal. You can't fix NAFTA without fixing issues with Canada," said Senator Ron Wyden, the top Democrat on the Senate Finance Committee, which oversees trade.