Court clears way for government lawsuit against U.S. Steel

A Canadian court has cleared the way for Ottawa to seek penalties of up to $10,000 a day against U.S. Steel for allegedly breaking job-protection promises made when it bought Hamilton, Ont.-based Stelco.

The Federal Court of Appeal struck down U.S. Steel’s efforts to overturn Canadian investment law — the second such court decision to go against the company — after almost two years of procedural and legal challenges by the Pittsburgh-based company.

The Canadian government sued the company in 2009, claiming U.S. Steel’s decision to temporarily shut down two former Stelco plants violated promises it made about maintaining employment levels.

U.S. Steel bought Stelco in 2007 for US$1.1 billion, and the decision to idle the Ontario facilities affected about 1,500 jobs. The company blamed weak demand for the shutdowns and denies it broke any promises.

All deals over $300 million involving a foreign buyer are required to pass an Industry Canada review to ensure that the takeover provides a “net benefit’’ to Canada. While the government does not detail what “net benefit’’ means, it considers employment, technology development, productivity, competition, and the effect a takeover will have on national policies.

In approving the Stelco takeover, the federal government cited job protection as one of the benefits.

The Investment Canada Act gives the government the authority to ask the courts to fine U.S. Steel up to $10,000 a day until its commitments on job protection are honoured.

“The courts have now made it clear — twice — that the penalties set out in the act are legitimate, as is their purpose to protect Canada’s economy and enforce promises made by foreign investors,’’ said Ken Neumann of the United Steelworkers union of the May 25 ruling.

U.S. Steel declined to comment on the development.

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