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RPT-UPDATE 1-S.Korea labour unrest heats up with Hyundai strike

(Refiles to fix dropped word in lead)

By Jean Yoon

SEOUL, June 29 (Reuters) - About 40,000 unionised workers at South Korea's top car maker, Hyundai Motor Co , began a two-day strike on Tuesday to demand higher wages, fanning investor fears over another summer of labour unrest.

South Korea traditionally faces a seasonal rise in union action every summer, but labour strife this year poses a big headache for a government struggling to boost sluggish domestic demand and business spending.

Hyundai's union is the country's largest and most powerful member of the umbrella group Korean Confederation of Trade Unions, which is threatening to unleash a summer of labour discontent, demanding higher wages and better working conditions.

"The strike started at 8 a.m. (2300 GMT on Monday) as scheduled," a Hyundai union spokesman said. "All union members are participating."

"The operation has been halted due to the strike," said a Hyundai spokesman. Hyundai has a total workforce of 50,000.

The strike comes after wage negotiations between Hyundai's management and its union had unravelled. The union, which is seeking a 10.48 percent increase in wage and a hefty bonus payout, earlier held a second six-hour strike on Monday after similar action on Friday.

A combined 110,000 workers at Hyundai Motor and smaller auto makers, textile companies, department stores and other workplaces are due to lay down tools on Tuesday, according to the union group, which has a total of 600,000 members.

The labour group has also vowed to protest against sending more troops to Iraq after the killing of a South Korean hostage by Muslim militants last week. The labour minister has urged unions not to link strikes to the deployment.

Separately, unionised workers at KorAm Bank , the country's sixth-biggest lender, which was recently bought by Citigroup Inc , entered its fifth day of strike to seek job security, disrupting operations at most of its branch offices.

Foreign investors cite labour unrest as the number one deterrent to doing business in Korea and local share prices suffer from the so-called 'Korea discount', linked to poor corporate governance as well as frequent industrial unrest.

Unionised workers at Hyundai's affiliate Kia Motors Corp will strike for eight hours on Tuesday, while smaller rival Ssangyong Motor Co will hold a four-hour strike.

NOT AS INTENSE

Despite the threat of a broader walk-out, analysts said they did not expect the current labour dispute to be violent or disruptive as some previous strikes that took weeks to end.

"This year's labour dispute may not be as intense or prolonged as the previous ones, which is what the market seems to be expecting," said Mark Yoon, an analyst at Merrill Lynch in a note to its clients.

A strike at Hyundai last year went on for 45 days.

Shares in Hyundai Motor were up 0.6 percent at 42,250 won by 0040 GMT, broadly in line with the broader market's 0.22 percent gain.

KorAm was unchanged at 15,500 won, Kia was 0.95 percent higher at 9,580 and Ssangyong gained 0.4 percent to 7,530.