MEXICO CITY (Reuters) - Mexico is working closely with U.S. Trade Representative Robert Lighthizer to close a loophole in the new North American trade deal, aimed at satisfying demands of U.S. Democratic lawmakers for tougher labor and environmental provisions, a senior Mexican official said.

FILE PHOTO: U.S. Trade Representative Robert Lighthizer testifies before a Senate Finance Committee hearing on "The President's 2019 Trade Policy Agenda and the United States-Mexico-Canada Agreement" on Capitol Hill in Washington, U.S., June 18, 2019. REUTERS/Leah Millis/File Photo

The United States, Mexico and Canada signed the United States-Mexico-Canada Agreement (USMCA) last November, to replace the North American Free Trade Agreement that governs more than $1.2 trillion of mutual trade, but implementation is subject to ratification by lawmakers in all three countries.

Mexico’s deputy foreign minister for North America, Jesus Seade, said the proposal he was working on with Lighthizer was focused on closing a loophole in the trade deal’s dispute resolution mechanism.

Democrats in the U.S. Congress, largely in the Democratic-controlled House of Representatives, have threatened to stall on ratification until their concerns are met. The new trade deal to replace NAFTA had come at the behest of Republican U.S. President Donald Trump.

Henry Connelly, a spokesman for House Speaker Nancy Pelosi, did not comment on the substance of negotiations. He said labor and enforcement provisions of the USMCA are a key concern of House Democrats. “The speaker continues to work with her caucus and the USTR to strengthen these critical areas of the proposed agreement,” Connelly said.

Seade said as the deal now stands, the United States could start a formal trade dispute if Mexico was exporting a product made under labor conditions it considered unfair and contrary to the rules in the pact. However, he said, a loophole meant Mexico could theoretically block a dispute panel from being created.

“There is a gap in the dispute resolution system,” he told Reuters in an interview on Wednesday. “We are trying to find a way to plug that gap.”

Earlier this year Mexico passed a law that strengthens the rights of trade unions, partly to comply with requirements in the USMCA. Mexico’s weak labor laws meant that for decades the country has had few independent unions, leading to low wages that both Trump and Democrats blame for excessive offshoring and a loss of U.S. jobs under NAFTA.

Seade said Mexico did not want to, and was not going to, re-open USMCA. Instead, he said, the gap could be closed through supplementary measures, “to make sure that if the United States government wants to initiate a panel against Mexico on labor standards,” it can do so.

Canada also opposes reopening the deal.

Last week, senior U.S. Democratic lawmaker Earl Blumenauer said Canada and Mexico may be open to a limited renegotiation of aspects of the agreement to satisfy U.S. lawmakers’ concerns.

Blumenauer, who chairs the trade subcommittee of the House of Representatives Ways and Means Committee, said the trade agreement could be modified to address specific concerns, but he was skeptical about using side agreements, saying they had proven problematic in the current NAFTA pact among the three nations.

Lighthizer’s office did not immediately respond to a request for comment about the talks with Mexico. In June, Lighthizer told a Senate panel that he was willing to work with members “to make (USMCA) even better.”

TICKING CLOCK

Time is short for ratifying the pact before the U.S. Congress enters its summer recess on July 27. When Congress returns in September, some Mexican officials worry that politics around the U.S. 2020 presidential race will make it harder for Congress to agree.

Canada’s parliament is seen as less of an obstacle. Mexico has already ratified the deal.

Asked about Mexico’s plan, a Canadian government source noted that Prime Minister Justin Trudeau and others “have engaged with Democrats ... to talk about the new NAFTA and why it’s good for working people, which is what they care about.”

Asked whether Canada would work with Democrats to include new guarantees, the source, who requested anonymity given the sensitivity of the situation, replied: “No, we are not looking to do that.”

Trudeau’s office did not immediately respond to a request for comment about the dispute mechanism plan.

The ongoing talks between Mexico, Lighthizer and Pelosi had progressed enough that even if ratification did not come until after Congress’ summer recess, positions were close enough for that not to be a major problem, Seade said.

Blumenauer last week said there was “no way” a vote would be possible before the August recess, but that Congress would continue to work on it in the autumn.