Freeland told reporters that "tough decisions" taken by Mexico, which agreed to wage hikes for some auto workers and tougher labor protections, among other matters, had eased matters for Canada and the United States.
Canadian Prime Minister Justin Trudeau stressed in a phone call with Trump that the aim is to reach a new NAFTA deal. "It's a must-have", said Welles Orr, a senior worldwide trade adviser at Miller and Chevalier, and a former Assistant U.S. Trade Representative.
Freeland, who later met with Mexican officials on Tuesday evening, said she is due to dig into detailed discussions with Lighthizer on Wednesday.
Foreign Affairs Minister Chrystia Freeland is in Washington for the latest round of negotiations, flanked by senior Canadian officials, including Prime Minister Justin Trudeau and his point-man on US relations, Brian Clow.
Foreign Minister Chrystia Freeland was on her way to Washington.
Greenwood said an agreement won't be easily reached, as there are multiple obstacles to overcome.
"I think it's going to be obviously very good for Canada if they do (join) and I think it's probably not going to be good at all if they don't", Trump said.
One of the issues for Canada in the revised deal is the US effort to dump the Chapter 19 dispute resolution mechanism that hinders the United States from pursuing anti-dumping and anti-subsidy cases.
"The U.S. went from a $1.6 billion goods trade surplus with Mexico to a $70 billion goods trade deficit during that same time period", it added.
Lawrence Herman, a veteran Toronto trade lawyer with long experience in Canada-U.S. relations, says Trump doesn't have that power.
Specifically, Trump called to congratulate Peña Nieto and himself on replacing NAFTA with what Trump called the United States-Mexico Trade Agreement.
Canadian officials say an agreement announced earlier in the week between the USA and Mexico, which includes common ground on the hard issue of labour within the auto sector, has broken a logjam in the talks. She said she was "encouraged" and "optimistic" upon her departure from the morning meeting, but she did not provide details.
He also said he believed Ottawa has more time than the Friday deadline pushed by U.S. President Donald Trump, who has told the Canadian government to either sign on to the existing deal between the U.S. and Mexico or face industry-killing tariffs on Canadian-built automobiles. Trump himself has avoided directly calling for the dismantling of supply management during his frequent attacks on Canadian dairy, including during Monday's announcement with Mexico.
Negotiators have worked for a year to update and rewrite NAFTA but in the last five weeks Washington and Mexico City held talks to resolve their bilateral issues, especially on the auto industry rules, without Ottawa.
Earlier in the day, both Larry Kudlow, the director of Trump's National Economic Council, and U.S. Commerce Secretary Wilbur Ross turned up the heat on Canada's negotiators during televised interviews.
"They used to call it NAFTA", Trump said Monday.
There are now big questions whether Canada is willing to open up access to its controversial supply-managed dairy market or if it will back away from its hard line to preserve NAFTA's dispute settlement system. It later morphed into the US-Mexico deal's requirement of 40 to 45 per cent of a vehicle's value to be made in high wage areas paying at least $16 an hour, requiring significant automotive production in the United States.
To make that happen, given the 90-day US notice requirement, signatures are needed on an agreement by the end of August - ie. While Freeland has said Canada would only sign the agreement if it was good for her country, Trump has warned that he could proceed with an agreement with Mexico alone.
The 24-year-old NAFTA, which also includes Mexico and is integral to the continent's economy, has been under renegotiation for more than 12 months.