A free trade deal between the US and South Korea is stuck on whether the latter will agree to give the US four or five years to phase out the 2.5% tariff it levies on Korean-built cars rather than cutting the tariff immediately, as Seoul has sought.

Negotiators led by US trade representative Ron Kirk and Korean trade minister Kim Jong-hoon were hammering out that point on Thursday, sources told the Wall Street Journal, as talks in Columbia, Maryland, extended to a third day, one longer than planned. People involved in the talks were optimistic about the chances for a deal, calling the narrow focus on the tariffs issue a sign of progress.

But both sides had also held high hopes that a deal could be struck on President Barack Obama's visit to Seoul for a summit of the Group of 20 nations in mid-November, a deadline Obama imposed in June. Those talks broke down largely over differences on the auto tariffs.

US trade officials declined to predict whether the two sides would reach an agreement this week. Any deal would require ratification by legislatures of both countries.

A deal with South Korea would represent the biggest bilateral trade pact the US has completed since 1994's North American Free Trade Agreement with Mexico and Canada. When a preliminary deal was reached in 2007, the International Trade Commission said it would increase US exports by up to US$11bn annually. South Korea is the US's seventh-largest trading partner, accounting for nearly $50bn in exports of goods and services in 2008.

But the US Congress balked at the deal over what it felt were remaining barriers to US beef and auto exports.

The deal called for immediate elimination of the US auto tariff, drawing opposition from US auto makers, led by Ford and the United Auto Workers, which pressed for a phase-out period of up to 10 years.

The key to a deal now lies in finding a compromise that would satisfy auto makers and their congressional backers, sources said.

Hyundai Motor already avoids paying US tariffs on more than half of the cars it sells in the US, by making them in Alabama and Georgia. Japanese auto makers used the same strategy when confronted by de facto US import quotas in the 1980s.