(Wraps trucker strike and Kia agreement)
By Jean Yoon
SEOUL, Aug 26 (Reuters) - South Korea moved on Tuesday to crack down on a strike by thousands of truck drivers which authorities believe is illegal and has disrupted freight flows and cost the country $338 million in delayed shipments.
At the same time, Kia Motors Corp , the country's second-largest auto maker, reached a tentative deal with union leaders, paving the way for an end to three weeks of strikes, but at a price -- an 8.8-percent wage increase and other benefits.
Foreign investors and business groups are closely watching the truck strike and other disputes. They have urged a tough stand after the young government of President Roh Moo-hyun caved in to labour demands during earlier disputes.
Industrial action over wages and union demands for greater say in management have become key hurdles in luring foreign investment, analysts say.
"The series of labour disputes are a major turn-off for foreign investors looking to do business in South Korea," said Lee Keun-mo, senior executive vice president at Goodmorning Shinhan Securities.
Labour unrest in South Korea, which has a reputation for union militancy, has drawn the spotlight this year as never before as the centre-left government of President Roh, a former labour lawyer, has been perceived as pro-labour.
"Rising wage costs are squeezing profitability and making Korea less attractive to do business. The disputes may even encourage foreign companies to pull out from Korea," added Lee.
TRUCKER STRIKE HEATS UP
About 30,000 drivers stopped work for a sixth day on Tuesday demanding higher cargo fees and recognition of their union, slowing traffic and endangering the export-dependent economy.
Police want to arrest eight truck drivers, but have not been able to track them down, a police official in Pusan told Reuters by telephone.
The truck drivers' group, which has been calling for more talks to end the dispute, is now refusing to talk to the government or employers, who want the truckers to return to work before talks resume.
"The government plans to take legal action against our leaders and stopping oil subsidies will be of no help resolving the dispute," the group, which calls itself the Cargo Transport Worker's Union, said in a statement.
"The union will not be shaken by the threat of an arrest."
The government has prevented truckers from forming unions, arguing they are self-employed. But drivers say since they are hired by transport firms they should be allowed to form a union.
The government said it would stop providing subsidies to truck drivers to compensate for an increase in oil prices, which was part of a deal reached to settle a strike in May.
Truck drivers that month ended a week-long strike that choked the port of Pusan after the government agreed to union demands.
KIA REACHES DEAL
President Roh appears to be taking an unusually tough line over the dispute, saying his government would not engage with a labour group that refused to talk or compromise.
"We will respond firmly according to law and principles to those groups that are not willing to talk or compromise," he told journalists on Monday.
Container cargo transport has fallen about 40 percent at Pusan, about 400 km (250 miles) southeast of the capital Seoul, which handles 80 percent of South Korea's container cargo, the government said.
The drivers' action follows nearly seven weeks of strikes at Hyundai Motor Co , which cost the nation's top car maker $1.2 billion in lost output before the dispute was settled.
Kia's union leaders reached a tentative deal on Tuesday that includes a pay rise of 8.8 percent, which is even higher than Hyundai's 8.6 percent, and a shorter work week of five days rather than six, which will start from September 1.
But union members still need to vote to end the strike, which has cost Kia about $450 million in lost output.
Kia shares were up 0.76 percent at 9,260 won at 0334 GMT, while the broader market was down 0.76 percent. (Additional reporting by Frances Yoon and Judy Lee)