According to analytic data provided by the Federation of Korean Industries (FKI), direct foreign investment only took up 2.1 percent of the nominal GDP in 1995, but the percentage grew to 5.8 percent in 2000, and further to 6.5 percent last year. At this rate, the manufacturing industry will be virtually empty by 2007.

"If we don't switch to state-of-the-art high value-added industries like the United States in the next three or four years, industries will begin losing substance and we our growth potential will deteriorate," said Seung-cheol, director of the FKI's headquarters.

Labor-intensive industries, including shoes, textiles, cellular phones, automobiles, and machine parts, have been quick to relocate abroad. Samsung Electronics has already moved 60 percent of its production line abroad, and LG Electronics produces state-of-the-art products, such as PDP televisions, at its plants in China.

"We can no longer build home electronics factories in Korea, due to the high cost of labor," said Kim Ssang-su, LG Electronics' vice president.

The FKI blamed unstable labor and management relations, along with high labor costs, for the companies' transfers to foreign countries. Dr. Choi Won-rak of the FKI said the labor and management relationship in our countries was the worst in a survey performed by the Institute for Management Development in Switzerland.

In addition, wages for employees in the manufacturing industry have increased by 50 percent since 1995, while those in Japan increased by 5 percent and those in the United States and Taiwan increased by 17 percent.

Hourly wages for workers in Korea are seven to eight times more than for Chinese workers, and 43 times higher for executives. Along with this, the price of industrial complex sites are 10 times more expensive than in China or Indonesia and the government restrictions and various allotments in forms of near-taxes are causing companies to leave Korea.

Some in business management circles claim that the government should abolish its restrictions and that local governments should take the initiative to attract domestic and foreign companies, according to the characteristics and benefits of each region.

"When companies start leaving Korea, local regions that have their foundation in the manufacturing industry will be hit harder," said Park Hyung-seo, economy research team director of the Korea Chamber of Commerce and Industry (KCCI). Park said a system that allows "restriction-free special districts" should be introduced. (Cho Hyoung-rae, hrcho@chosun.com )