[drpgq]

Globe and Mail Update

May 6, 2009 at 12:00 PM EDT

OTTAWA — Industry Minster Tony Clement is threatening legal action to get U.S. Steel Corp. [X-N] to resume operations in Canada and put hundreds of people back to work.

The Pittsburg-based company's decision in March to idle production at its Hamilton, Ont., factory violates the terms under which U.S. Steel was granted permission to buy Stelco Inc. in 2007, Mr. Clement said in statement Wednesday.

Mr. Clement said that he has sent U.S. Steel a “demand letter,” which represents the first stage in the enforcement process under the Canadian law that governs the sale of Canadian companies to international investors.

“I am concerned by the actions of U.S. Steel in cutting operations in Canada and by the impact this will have on its workers,” Mr. Clement said. “While I recognize that these are challenging economic times, we expect the company to live up to its commitments.”

U.S. Steel is feeling the full brunt of the global recession, and especially the collapse of North American automobile sales. The company last month said sales dropped 47 per cent in the first quarter to $2.75-billion (U.S.), triggering the company's first quarterly loss in five years.

In March, U.S. Steel announced plans to lay off 9,400 workers at two Canadian plants and facilities in Michigan, Minnesota, Illinois and Texas.

In Canada, the company shed 1,500 workers.

Courtney Boone, a spokeswoman for U.S. Steel, said jobs will return only when orders pick up.

Ms. Boone didn't have an immediate comment on Mr. Clement's letter.

U.S. Steel's debt lost investment-grade status last month as Moody's Investors Service issued a downgrade, saying the lack of demand for steel will cause persistent losses.

Standard & Poor's, which already had U.S. Steel debt rated as junk, said the company's revenue could decline 50 per cent this year from 2008. U.S. Steel earned revenue of $23.8-billion (U.S.) last year.

Mr. Clement said that's no reason to cut production and shed workers at Stelco.

“I have sent U.S. Steel a demand letter under section 39 of the Investment Canada Act asking the company to comply with its undertakings,” which include commitments related to capital expenditures, research and development and production, Mr. Clement said.

Ottawa can take the U.S. firm to court if it feels the company has not lived up to those undertakings.

According to the Investment Canada Act, the court can direct “the non-Canadian to divest himself of control of the Canadian business on such terms and conditions as the court deems just and reasonable.”

It can also impose fines of $10,000 a day on any company deemed to be in contravention of the act.