Canada is not making concessions needed to reach a deal with the United States for a trilateral NAFTA pact and is running out of time before Washington proceeds with a Mexico-only agreement, a top U.S. official said on Tuesday.

The administration of President Donald Trump has recently started increasing the pressure on Canada, urging it to conclude a deal by Sept. 30 or face exclusion from a revised North American Free Trade Agreement.

U.S. Trade Representative Robert Lighthizer said there was some "distance" between the two sides on issues such as access to Canada's dairy market and how best to settle trade disputes.

"The fact is, Canada is not making concessions in areas where we think they're essential," Lighthizer said at the Concordia Summit in New York.

'Running out of time'

"We're going to go ahead with Mexico. If Canada comes along now, that would be the best. If Canada comes along later, then that's what will happen.

"We're sort of running out of time."

Trump has demanded major changes to NAFTA, which he says caused U.S. manufacturing jobs to move to low-wage Mexico. Markets are nervous about the impact on a deal that underpins $1.2 trillion in annual trade.

Canadian officials say that despite the U.S. threats to go it alone with Mexico, they do not believe Trump can by himself turn the 1994 pact into a bilateral deal.

U.S. business groups, alarmed by the potential disruption to the three increasingly integrated economies, have lobbied the White House to keep NAFTA as a trilateral deal.

The office of Canadian Foreign Minister Chrystia Freeland, who sits opposite Lighthizer at the negotiations, did not respond to a request for comment. The two are in New York for a UN meeting but it is unclear whether they will meet.

Prime Minister Justin Trudeau spoke before Lighthizer at an event hosted by the Council on Foreign Relations in New York and took a more cautious tone about the outcome.

"They (the United States and Mexico) made certain agreements," he said. "I think there's a possibility there to build on what they agreed."

Prime Minister Justin Trudeau participates in a discussion at the Council on Foreign Relations in New York, Tuesday, Sept. 25, 2018 (Adrian Wyld/THE CANADIAN PRESS)

The Trump administration says the text of a deal is needed by Saturday to allow the Mexican government to sign it before leaving office on Nov 30.

"With Mexico, we're not going to say 'no deal' because of Canada," Lighthizer said. "That doesn't make any sense at all, so hopefully we'll end up with something with Canada."

Canada also has made clear the United States needs to withdraw Trump's threat of a 25 per cent tariff on autos for a deal to be possible.

The United States, citing security reasons, imposed tariffs on Canadian steel and aluminum in late May. Lighthizer said those tariffs would be addressed once NAFTA had been completed.