If you can create a text file that uses Unicode UTF-8 format, with a
suitable Unicode Byte Order Marker (BOM) , I /think/ Word will recognise the
file correctly, but it may still pop up an encoding dialog box.

The only other approach I know that /may/ solve this is to use some form of
automation to convert the source into a format that does work. For example,
use Word automation to open the file and save it as a Word document, then
use that as the data source for your merge. In this case you can specify the
encoding when you open the file.

If you convert to a Word .doc file, you may encounter performance problems
and (possibly) restrictions on the column count. But otherwise, that is
probably the best option.

To do the conversion, you need a simple macro, but you might need to do more
to cope with different file names and so on.

E.g.

Sub ConvertToUTF8()
' convert to a UTF8 format text file

' Needs error checking etc.
Dim oDoc as Word.Document

' change msoEncodingWestern to be the encoding you need. I think this should
work.

Set oDoc = Documents.Open("the path name of the file you need to
convert.txt", _
 False, , False, , , , , , _
 wdOpenFormatEncodedText, _
 msoEncodingWestern, _
 False, False, , True)

' Several of the parameters here are optional or
' irrelevant - you can probably remove the lines from
' ReadOnlyRecommended to SaveAsAOCLetter

oDoc.SaveAs _
 FileName:="the path name of the file to convert to.txt", _
 FileFormat:=wdFormatUnicodeTex­t, _
 AddToRecentFiles:=False, _
 ReadOnlyRecommended:=False, _
 EmbedTrueTypeFonts:=False, _
 SaveNativePictureFormat:=False­, _
 SaveFormsData:=False, _
 SaveAsAOCLetter:=False, _
 Encoding:=msoEncodingUTF8, _
 InsertLineBreaks:=False, _
 AllowSubstitutions:=False, _
 LineEnding:=wdCRLF

oDoc.Close Savechanges:=False
Set oDoc = Nothing
End Sub

or

Sub ConvertToWord()
' convert to a Word document file

' Needs error checking etc.
Dim oDoc as Word.Document

' change msoEncodingWestern to be the encoding you need. I think this should
work.

Set oDoc = Documents.Open("the path name of the file you need to
convert.txt", _
 False, , False, , , , , , _
 wdOpenFormatEncodedText, _
 msoEncodingWestern, _
 False, False, , True)

' Several of the parameters here are optional or
' irrelevant - you can probably remove the lines from
' ReadOnlyRecommended to Encoding

oDoc.SaveAs _
 FileName:="the path name of the file to convert to.doc", _
 FileFormat:=wdFormatDocument, _
 AddToRecentFiles:=False, _
 ReadOnlyRecommended:=False, _
 EmbedTrueTypeFonts:=False, _
 SaveNativePictureFormat:=False­, _
 SaveFormsData:=False, _
 SaveAsAOCLetter:=False, _
 Encoding:=msoEncodingUTF8, _
 InsertLineBreaks:=False, _
 AllowSubstitutions:=False, _
 LineEnding:=wdCRLF

oDoc.Close Savechanges:=False
Set oDoc = Nothing
End Sub