By Daina Beth Solomon and Cassandra Garrison

MEXICO CITY (Reuters) -The U.S. sees some progress on an energy dispute with Mexico, although “deep-seated” concerns persist, U.S. Trade Representative Katherine Tai said on Thursday shortly before talks in Mexico with top Mexican and Canadian trade officials.

The U.S. and Canada demanded dispute settlement talks over energy with Mexico in July 2022, arguing that Mexico’s nationalist energy policies, which have tightened state control over the energy market, were discriminatory to U.S. companies.

Tai said she was confident that existing dispute resolution mechanisms under a North American trade deal, known in the U.S. as USMCA, would be effective in resolving the energy issue.

Tai spoke to reporters before an annual meeting of the USMCA Free Trade Commission in the Mexican city of Cancun, where she was scheduled to meet Mexican Economy Secretary Raquel Buenrostro and Canadian Minister of International Trade Mary Ng.

“If we are not able to make more progress, the next step in the formal toolkit would be the request for a dispute settlement panel,” Tai said.

In a subsequent meeting, Tai discussed with Buenrostro the importance of Mexico’s USMCA commitments, including on energy, biotechnology and labor, her office said in a statement, without providing further details.

Canada’s Ng separately noted progress with Mexico over energy issues, saying concerns of Canadian companies had been addressed.

Tai also stressed the importance of Mexico’s monitoring of steel and aluminum exports to the U.S., noting a 2019 agreement between the countries to avoid unfair dumping and calling for “greater transparency” on Mexico’s imports.

Mexico called for good faith implementation of the measures to solve labor disputes under the agreement, according to a statement from the economy ministry later on Thursday.

The ministry stressed that any alleged violation should be well reasoned.

In addition to the labor and energy dispute, the U.S. and Mexico are engaged in a disagreement over a Mexican decree to limit the use of genetically modified (GM) corn.

Before the meeting, Tai said trade dispute settlement consultations over GM corn, which the U.S. requested in June, began with Mexico last week. If a resolution is not reached within 75 days of the start of consultations, the U.S. will have the option to request a dispute panel.

“We stand behind the safety of our agricultural products that have been enjoying a very robust trade between our three countries for several decades now and will continue to pursue our rights and interests,” Tai said.

Mexico wants to ban GM corn for human consumption in the food staple tortilla, which is mostly made of white corn, and eventually substitute GM yellow corn used for livestock feed, arguing that biotech corn harms native varieties and may have adverse health effects.

The Latin American country imports more than 17 million metric tons of U.S. corn annually, which is overwhelmingly GM yellow corn, worth about $5 billion. The U.S. has argued that Mexico’s plan is not based on science and will hurt U.S. farmers.

(Reporting by Daina Beth Solomon and Cassandra Garrison; Additional reporting by Costas Pitas; Writing by Brendan O’Boyle; Editing by Marguerita Choy and Diane Craft)

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