Clement asks court to order U.S. Steel Canada to comply with jobs commitments

The federal government is going to court to force American industrial giant U.S. Steel Corp. to live up to job commitments it made two years ago in return for approval to buy the former Stelco Inc. of Hamilton.

Industry Minister Tony Clement said Friday he has asked the Federal Court of Canada to force the steel producer to meet commitments it made in 2007 on production, research and development and capital spending in Canada.

Hamilton-based U.S. Steel Canada shut down most of its Canadian operations in southern Ontario this spring, affecting about 1,500 employees at mills in Hamilton and Lake Erie, because of weak markets. The company has recalled 800 workers to its Hamilton mill who will come back to work over the course of the summer.

After the mill shutdowns, Clement sent a demand letter to U.S. Steel Corp. (NYSE:X) in May, asking the Pittsburgh-based parent company to comply with its 2007 commitments.

Such a letter was the first step in the enforcement process under the Investment Canada Act. At the time Clement said the government had several options to fight the layoffs, including reversing the $1.1-billion Stelco takeover, seeking court penalties of $10,000 a day against the company or getting a court order.

"I have carefully reviewed U.S. Steel's response to my letter," Clement said in a release Friday afternoon. "I remain of the view that U.S. Steel is not complying with its undertakings, and I am not satisfied by its explanations for non-compliance.

"I am therefore announcing today that, on my instructions, an application has been filed with the Federal Court of Canada asking the Court to order appropriate measures to remedy this situation. This is the next step in the enforcement process under Section 40 of the Act."

In a statement from its Pittsburgh head office, U.S. Steel said it had been served with legal documents Friday afternoon and promised to fight the Canadian government's move in court.

"Since all of the communications between the minister and U.S. Steel on this subject are required to be confidential under the Investment Canada Act, we cannot comment on the substance of those communications," James Garraux, general counsel and senior vice-president of labour relations and environmental affairs at U.S. Steel, said in a statement emailed to The Canadian Press.

"We are disappointed that the minister has apparently decided to pursue the matter in the courts while ignoring our numerous requests to meet with him on these issues and while disregarding the ministry's own guidelines with respect to foreign investment," added Garraux.

"Nevertheless, we will vigorously defend our record at U.S. Steel Canada in the appropriate forum."

Ken Neumann, Canadian national director of the United Steelworkers union, applauded the government for enforcing the Investment Canada Act, but he called for more transparency in future discussions with the company.

He said U.S. Steel workers have been left in the dark about their future and he urged the federal government to release details of the commitments made by the steel producer when it took over Stelco.

"You just can't continue to negotiate those deals in secrecy," Neumann said in an interview. "This is their opportunity to put some teeth into the (Investment Canada Act)."

Neumann said any decision reached by the Federal Court could affect future actions by other international companies with major Canadian operations, including international nickel miners Vale Inco and Xstrata.

Brazilian company Companhia Vale do Rio Doce bought the former Inco Ltd. in 2006 and is now asking for major concessions from its Canadian workers after laying off more than 400 white-collar employees. Xstrata Nickel, the former Falconbridge Ltd., laid off 686 employees in February.

Neumann said U.S. Steel is also asking for "massive concessions" from workers in ongoing labour negotiations.

"We've spoken out about this time and time again - when you've got foreign capital that comes into this country and takes over some of our major resources, you've got to look at, what's the net benefit to Canada?" Neumann said.

"I think this is a step in the right direction, but now that you've taken that step, continue all the way through to the finish line and do what's important for the workers, the communities and the people that are doing these jobs."

Seeking a court order to force a company to maintain job commitments is an unusual step for the Canadian government. But it reflects growing unease in the country about the takeover of Canada's steel and mining industries and whether foreign owners will keep industrial jobs in the country.

With the economic downturn hitting Canada's manufacturing sector in Ontario and Quebec hard, unions and other groups are pressing Ottawa to protect jobs and Canada's interests as the global recession leads to restructuring in resources and primary industries.

Canada's big steelmakers - the former Stelco, Dofasco, Algoma Steel and Ipsco - have all been acquired in recent years by foreign companies in an earlier wave of consolidation in that sector.

Worries about takeovers in the oilsands and other industries prompted Ottawa to change its rules two years ago to ensure foreign takeovers face a national security test before they are approved.

But last fall, Prime Minister Stephen Harper proposed to open up the Canadian economy to more foreign investment and to relax current foreign ownership limits in the airline and uranium industries.

Under the proposed changes - stemming from a task force review of Canadian competition policy - only deals worth more than $1 billion would be subject to federal review, up from the current threshold of $295 million.

U.S. Steel Corp. is an integrated steel producer with 49,000 employees and operations in Canada, the United States and Europe and joint ventures around the world.

The company traces its roots to 1901, when it was founded in Pittsburgh and had its origins through the dealings of legendary U.S. businessmen Andrew Carnegie, J.P. Morgan and Charles Schwab.

In trading on the New York Stock Exchange on Friday, U.S. Steel shares rose 77.7 cents to US$37.27, a gain of 2.1 per cent in trading of more than 14 million shares.