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
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
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
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
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.