PITTSBURG, CALIF. -- The old plant on a murky river northeast of San Francisco Bay saw its best days in the first half of the century, when this town served as the westernmost outpost of the U.S. steel industry. Now, through an unprecedented modernization project, it seeks a different role -- to be the easternmost outpost of the South Korean steel industry.

It might be expected that the reconstruction of the old U.S. Steel Corp. plant here under a new name, USS-POSCO, and new American and South Korean management would receive a warm welcome from local politicians and union leaders. It is saving at least 600 jobs and bringing in millions of construction dollars. Foreign-financed auto and electronics plants in other parts of the country have found U.S. communities fighting for their business.

Instead, the modernization has sparked large and sometimes bitter anti-Korean demonstrations, brought court battles and forced union members to choose sides -- a chilly and tense reception for what is supposed to be a vanguard of the 21st century Pacific Rim economy.

At the heart of the controversy is the decision of USS-POSCO, a joint venture of USX Corp. and Pohang Iron and Steel Co., to award the $350 million modernization contract to a nonunion American-Korean partnership called AMK International. Confronted with the largest nonunion construction project in state history, the California Building Trades Council and its associated unions have picketed the project, have sought disabling rulings from local governing bodies and have taken the project into court and arbitration.

But it has proved difficult to overcome the global forces that are steadily moving California's and Asia's economies closer together.

Despite a significant, if preliminary, union victory before an arbitration panel in Washington, the company says the modernization project is nearly 50 percent complete, and appears likely to meet its 1989 deadline for the new steel cold-finishing facility.

The unions who have fought the project insist the project is actually several months behind schedule but acknowledge that there is little chance of their members participating in it now, and the unionized steelworkers whose jobs will be saved by the project say they can do little for their union brothers.

"We do support the building trades," said Daniel Gutierrez, financial secretary of local 1440, United Steelworkers of America. "However, we do have a no-strike clause in our contract and we need those jobs."

Some steelworkers here remembered when the plant supported more than 5,000 jobs and when, very recently, it seemed close to being shut down altogether. In February the steelworkers voted by a close margin to accept a new contract freezing wages until March 1, 1988, and then imposing cuts for the rest of the five-year contract that would reduce the average wage from $12.33 to $11.80 an hour.

Without the cuts, the company said, the modernization program could not go forward and the plant would close. USS-POSCO executives have used the steelworker agreement as a key defense of their decision to hire a nonunion firm for the modernization.

"We could hardly ask the steelworkers to make these concessions and then pay a premium to another work force to do this job," said USS-POSCO spokesman Earl MacIntyre. "It would be irresponsible for any company to do that."

AMK won the reconstruction project with a bid that was $45 million lower than that of its nearest competitor and $70 million lower than the lowest bidder paying union scale, said Scott Robertson, spokesman for Alabama-based BE&K Construction Co., the principal AMK partner. The company promised to hire most of its workers from the local area, but the unions predicted they would hire people from out of state.

"That became a self-fulfilling prophecy," Robertson said, when picket lines and demonstrations frightened away local workers in the early stages of the project. Union attorneys deny this, and say the company hired mostly out of state workers from the start.

Seven hundred construction workers, mary wearing buttons reading "Unemployment -- Made in Korea," demonstrated outside the South Korean consulate in San Francisco. Several said they had fought to save South Korea from communist invasion in the early 1950s, only to see that country threaten their livelihoods.

San Francisco attorney Victor Van Bourg, longtime general counsel for the building trades council, noted that foreign investment in the past, such as U.S. investment in South Korea and Japan, helped raise living standards.

The Korean project, and others like it, means "that for the first time in the modern industrial era, because of other problems in the global economy, the prime requirement for foreign investment in the U.S. is to reduce our standard of living," he said.

Van Bourg has succeeded in persuading an arbitration panel in Washington that one of the AMK partners, ECI Inc., was obligated to pay union wages under a labor contract signed by an associated firm, Eichleay Corp. The panel's ruling that AMK must pay more than $60 million in wages and benefits to nonunion workers at the project and to union workers they displaced is being challenged in federal court.

James Taylor, president of ECI, said that although his company and Eichleay were both owned by the same Pittsburgh-based holding company, they were separate entities and ECI should not be required to honor Eichleay Corp.'s labor contracts.

USS-POSCO, MacIntyre said, is simply attempting to adjust to new realities of Pacific basin trade -- new Asian technology, lower Asian wages and aggressive Asian sales techniques.

The South Korean technology in the new plant will make it the only one of its kind in the United States, MacIntyre said, and give it the ability to compete for buyers even in Japan. "We look at this as a job preservation program," he said.

Van Bourg said he senses that the South Koreans have little interest in saving American jobs. Instead, he said, they want a U.S. outlet that will allow them to avoid U.S. tariffs on foreign-made steel.

"The Koreans are intent on this," he said, "because they think this is the way they can eventually defeat protectionism."