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Five years ago, outside the gates of U.S. Steel Canada’s Nanticoke plant on Lake Erie, unionized workers sported a sign reading “Guantanamo North.” The sign might have been accurate if the company had been trying to lock workers in rather than out, but its main significance lay in indicating the poisonous relations between the United Steelworkers and U.S. Steel, which had taken over the plant as part of its acquisition of Stelco in 2007.
This week the union was again posturing angrily following the announcement that U.S. Steel Canada has filed for bankruptcy protection. Since the end of 2009, it has suffered an aggregate loss of US$2.4-billion. Its liabilities surpass its assets by around US$2 billion. The company also announced this week that expansion plans north of the border were being shelved. The news sent the shares of parent U.S. Steel to a three year high.
Analysts have suggested that the need for protection be laid at the door of poor management, and that may well be a factor. However, at least as important is the Great Recession of 2008-2009. Meanwhile there are other major culprits: principally the Ontario and federal governments, with President Obama’s Buy American policies another major negative factor.
Ontario’s attempt to make Stelco a more desirable purchase by providing a forgivable loan to U.S. Steel, provisional on refurbishing Stelco’s depleted pension fund, has turned out to be a millstone. The fund is at least $800-million underwater, with requirements for the company to kick in further hundreds of millions of dollars in coming years. It is estimated that without a restructuring Ontario taxpayers could be on the hook for $400-million to make up for pension deficiencies. One big policy question is why they should be on the hook at all.
U.S. Steel Canada’s stumble also demonstrates how utterly misguided are Canada’s foreign investment review rules, in particular those requiring acquisitors to guarantee a “net benefit” to the economy. Since jobs and investments are a reflection of management skill and market conditions, neither of which can be guaranteed, such commitments are either superfluous or outright destructive. Any forced agreement with specific manning levels inevitably makes unions even more intransigent, since the government has effectively agreed to back unreasonable demands with legal force.
The government of Stephen Harper in fact went down this route when it sued U.S. Steel Canada over manning levels in 2012, confirming, rather, that its foreign investment policy was a dysfunctional mess. One can understand the desire to remain “flexible” (read opaque) when state owned enterprises are involved, but since it sued U.S. Steel Canada, why didn’t it sue Vale and Xstrata, the companies that had, respectively, purchased Inco and Falconbridge and also failed to meet manning commitments?
For the rest of this column, click here: http://business.financialpost.com/2014/09/18/peter-foster-time-to-stop-saving-u-s-steel-canada/