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Canada cracks down as foreign-owned firms cut back

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TORONTO Canada has long been perceived as the friendly country to the north with a backbone of rubber. But with its steel and resource industries now mostly in the hands of foreigners who have been slashing jobs and production at a speed once thought unthinkable, the nation is forcibly raising a hand of objection.

In May, Canadian Industry Minister Tony Clement bluntly told U.S. Steel Corp. to keep the commitments it made when it purchased Stelco Inc. in 2007 or face the possibility of government intervention. "What I'm signaling to you is I take these agreements seriously," Clement told reporters when announcing the action. "When you have signed a deal with the Canadian government to invest in Canada we expect you to honor the deal .?.?. and I will act to defend the interests of Canada."

The demands were sent in a letter to U.S. Steel, and a response was requested within 10 days. They got it in the form of an 80-page, undoubtedly heavily lawyered, document, reportedly stating that the company shouldn't be held responsible for factors beyond its control—namely, the plunge in steel demand resulting from the global recession.

Clement wasn't satisfied. Two months later, he announced that the Canadian government was taking the unprecedented step of suing the industrial giant to force it to live up to its workforce and production commitments.

According to documents filed with the Federal Court of Canada and obtained by the Canadian Press news agency, U.S. Steel promised in 2007 that steel output between Nov.1, 2007, and Oct. 31, 2009, would be at least 3.95 million tonnes at an annualized rate, and that it would employ an average of 3,105 full-time workers. But U.S. Steel's Canadian operations produced slightly less than promised in 2008, according to the documents, and as of May 20, 2009, had produced only "a small fraction" of what was promised. Moreover, only 23 percent of the 3,105 workers pledged in the employment provision were actively working as of May 20.

The government has asked for a court order mandating that U.S. Steel meet its promises or face a Canadian $10,000 ($9,100) daily fine.

Clement's actions could raise a legal hornets' nest that may take well into the next economic cycle to resolve. There's also the risk that it could scare away future foreign investment—money that often greases the gears of economic activity in the country. A government that tries to force a company to restart production when there may not be enough demand for its product isn't going to win popularity contests in capitalist circles.

But Clement clearly has chosen bold action instead of being seen as not doing anything while the decisions of foreign-controlled corporations—which had been welcomed largely with open arms—contribute heavily to the roster of the unemployed.

The government voiced similar complaints against Vale Inco Ltd. and Xstrata over closures at operations in Sudbury, Ontario, formerly owned by Canadian companies Inco Ltd. and Falconbridge Ltd., respectively. In the end, though, it took no action. Xstrata got off the hook by committing to spend hundreds of millions of dollars on other projects.

In the case of Vale Inco, owned by Brazilian miner Vale, Clement determined the company cut back operations enough in other parts of the world to justify the Canadian closures. "One of the things I look for is, is there an equality of pain around the world in these international enterprises," Clement said.

Curiously, Clement went much further, heralding Vale Inco as a local savior, saying the Ontario operations would have become a "Valley of Death" if the Brazilians hadn't purchased the company. "There was going to be no buyer, there were going to be no jobs, there weren't going to be any capital investments, there was going to be no employer," Clement told the Sudbury Star in an interview.

In reality, Vale won Inco after a heated takeover battle with Teck Resources, Phelps Dodge and Falconbridge. Scott Hand, Inco's former chief executive officer, might have summed it up best in an interview with Canada's Globe and Mail newspaper "He's either sadly misinformed or he's ignoring the facts, because back in 2006 we were a very successful company. There were lots of companies trying to buy us, not just (Vale)."

As to the question of whether U.S. Steel's Canadian operations were unfairly targeted for closure, the evidence doesn't overwhelmingly work in Clement's favor, either. U.S. Steel has retained production at three U.S. facilities—the Mon Valley Works near Pittsburgh; the Gary (Ind.) Works; and the Fairfield Works near Birmingham, Ala.—but it has shut down a much greater number of plants elsewhere in the United States. U.S. Steel did start calling back 800 coke-oven workers at Hamilton, Ontario, in mid-June while also announcing that one of two blast furnaces was being restarted at its Granite City, Ill., operations.

It's commendable that Clement is sending a clear message that foreign-investment agreements must be taken seriously by head offices, but he doesn't appear to be taking a completely consistent approach to enforcement. There's also the reality that, given the viciousness of this economic downturn, many of the facilities at issue may very well have been mothballed even under domestic ownership.
DARCY KEITH


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