U.S. Steel launches second front of appeals

OTTAWA — The first prosecution in history of a foreign corporation under the Investment Canada Act for non-compliance is proving a hard slog for the federal government.

OTTAWA — The first prosecution in history of a foreign corporation under the Investment Canada Act for non-compliance is proving a hard slog for the federal government.

Almost a year and a half after Industry Minister Tony Clement sued U.S. Steel Corp. (NYSE:X) for not living up to the terms of its acquisition of the former Stelco Inc. in 2007, there is still no indication when the case might be tried.

In June, the Federal Court rejected U.S. Steel’s attempt to declare the whole proceeding unconstitutional.

On Monday, the U.S. giant was back before the Federal Court — this time arguing that a previous judge had erred in allowing intervener status to the union and a company that may want to buy the Hamilton and Nanticoke, Ont., operations.

The injection of the union, along with potential bidder Lakeside Steel Inc. (TSX:LS), into the case “has fundamentally altered the nature of the proceedings,” argued U.S. Steel lawyer Michael Barrack.

After a morning of arguments and counter-arguments, Justice David Near reserved judgment.

U.S. Steel has also appealed the rejection of its original challenge on the issue of the constitutionality of the investment act, with arguments scheduled for December.

“I think they’re just stalling,” said Rolf Gerstenberger, president of Local 1005 of the United Steelworkers union representing workers in the Hamilton plant, who was present at Monday’s hearing.

“I don’t know what they hope to gain.”

Lawyers in the case were noncommittal about when the core of the case is likely to begin.

The government is seeking up to $10,000 a day in penalties — or up to $14.6 million for the period in question — arguing that U.S. Steel broke its signed commitments to keep the average workforce at about 3,100 over the three years since its acquisition of Stelco, as well as maintain production levels.

The company does not dispute that it scaled back after the recession hit in October 2008, saying the global collapse in demand for steel left it no choice.

But on Monday, Lakeside lawyer David Wilson gave an alternative explanation for the curtailment of the Canadian operations — the Buy America provisions in the U.S. infrastructure stimulus programs.

“Buy America created an incentive for U.S. Steel to favour its American operations over its Canadian operations,” he said.

U.S. legislation favoured American suppliers on projects supported by stimulus funds.

In his submission, Barrack, the U.S. Steel lawyer, said allowing the union and Lakeside to intervene has changed the case because aside from the penalties, Lakeside is asking the court to force a sale of the company back into Canadian hands. Lakeside has expressed interest in purchasing the former Stelco operations.

“The question of divestiture was not before the court because the minister did not put it forward,” Barrack noted.

“The investor is entitled to face one prosecutor only.”

Lakeside and the union, the United Steelworkers of America, said the case was a matter of public interest that went beyond a dispute between U.S. Steel and the minister of Industry.

The federal government has promised to review the Investment Canada Act, particularly sections dealing with the net benefit to Canada test that foreign firms must pass, following the controversial rejection of BHP Billiton’s attempted takeover of Potash Corp.

Critics of the act have cited U.S. Steel’s broken promises, along with those of others, as reasons Ottawa should take a harder line on foreign acquisitions.

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