Brian Donnelly reports on the crisis at the Hyundai Motors headquarters near Seoul where 5000 striking workers stand defiant against ranks of riot police

Not too long ago, South Korea was hailed as one of the leading innovators within the tiger economy, a major player in the mass-manufacturing game that was supposed to establish it firmly in the global market.

Throughout the eighties and early nineties, there appeared to be nothing that could slow the expansion of companies such as the car and electronics giant Hyundai, which, until now, has not been seen as anything other than one of the main driving forces responsible for strengthening the eastern economy.

Hyundai is now a household name in the UK, and the company's cars have long since lost the less than glowing reputation its earlier vehicles had acquired.

However, the corporation - South Korea's largest car manufacturer - is in the middle of a crisis that is likely to affect the country's overall efforts to woo back foreign investors as well as create a domino effect on other troubled businesses there.

The country was already facing an uphill struggle to get its economy back on track after receiving an emergency rescue package from the International Monetary Fund (IMF), following the collapse of the South Korean currency - the won - last year.

One condition laid down by

the IMF when it handed over the $58bn bail-out package last December was that the South Korean government's president, Kim Dae-Jung, would create a more flexible labour market.

Flexibility, though, is not the word that immediately springs to mind when describing the incredible situation currently unfolding at the massive Hyundai Motors headquarters in Ulsan, an industrial city south-east of Seoul. There, some 5000 workers have been on strike for a month in protest at the company's move to lay off more than 1500 workers.

The scene is as bizarre as it is terrifying: women clutching children stand between their striking husbands armed with lead pipes and ranks of riot police backed up with trucks, bulldozers, water cannons, and tear gas.

Government mediators reported some progress in negotiations last night, although it also emerged that 15,000 riot police are standing by to break up the strike should those negotiations collapse.

''We are making progress piece by piece, but it is too early to say we have an agreement in our hands,'' a leading member of the government negotiation team said last night.

Hyundai Motors, just one sector of the gargantuan conglomerate, is the first to begin shedding redundant workers.

The workers and their families have been encamped in deteriorating weather conditions at the plant since July 20.

Eastern economy experts believe that the increasing threat of the use of force is a cause of great embarrassment to President Kim, a former opposition leader who routinely accused past governments of police brutality in breaking up industrial unrest.

Government officials also fear that the stark television images of helmeted riot police throwing tear gas and wielding batons at workers who have armed themselves with metal pipes and fire bombs could put paid to hopes of attracting investors.

To avoid that, President Kim's governing party dispatched the five-member negotiating

team that since Tuesday has

had separate talks with

Hyundai managers and union leaders. South Korean media have reported that both sides are resistant to compromise.

The union is adamant that it wants the company to take back ''every single one'' of the 1600 workers sent home at the end of July because of a sharply falling domestic sales.

The corporation, the electronics arm of which once again shelved plans for the beleaguered development in Fife at the start of August, and is still hunting for a partner, earlier this year got rid of 6100 workers by offering enhanced early retirement packages.

It insists it has to reduce its workforce further in line with

the slump in demand for its cars. The government says that redundancies are ''inevitable''.

It is estimated the company has lost more than #374m since the beginning of the strike.

In the midst of the deepening economic crisis, the number of jobless people has doubled to

1.5 million and is expected to reach 2 million by the end of this year, a scenario this generation of South Korean workers, who were accustomed to a lifetime in work,

is finding difficult to come to

terms with.

The government negotiations spokesman knows exactly how sensitive the situation is.

He said: ''The rest of of the

world is watching. This is the

first showcase test on how South Korea will keep its promise to

allow lay-offs.''

The Hyundai union, which has more than 20,000 members and is considered to be one of the most militant in the country, claims that it has recognised the need to react to the drastic change in the economic climate that has plunged the east into crisis.

The head of the union, Kim Kwang-shik, is still hopeful of a peaceful end to the strike. ''It's rough sailing, but the talks have not broken down yet,'' he said.