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Steam billows from the U.S. Steel Canada mill, formerly Stelco, in Hamilton, Ont.

MIKE CASSESE/REUTERS

The federal government has dropped its legal case against United States Steel Corp. for breaking promises to maintain jobs after its 2007 takeover of Hamilton's Stelco. In exchange, the company pledged to keep producing steel in Canada until 2015 and invest an additional $50-million.

The deal snuffs out a high-stakes court fight between the federal government and the Pittsburgh-based company. But lawyers who advise foreign investors say it sends a signal that Ottawa is serious about enforcing promises made to secure government approval of foreign takeovers.

However, the union representing workers at the two former Stelco mills called the deal a betrayal by the Conservative government.

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Industry Minister Christian Paradis announced the agreement in the House of Commons on Monday, saying it was made after the company had approached him and after "extensive negotiations."

Under the deal, he said, U.S. Steel pledged to keep producing steel in Canada, operate its Lake Erie and Hamilton plants until 2015 and invest at least $50-million in its Canadian facilities by December, 2015, in addition to its original pledge of $200-million by October of next year. The company also pledged to give $3-million to "community and educational programs" in Hamilton and Nanticoke, Ont..

"U.S. Steel's new commitments, many of which run to 2015, will provide benefits that in all likelihood would not have been obtained through the court process," Mr. Paradis said.

The deal comes after U.S. Steel lost its legal argument in May that the potential $10,000-a-day fines it was facing under the Investment Canada Act were unconstitutional. On Nov. 24, the Supreme Court of Canada announced that it would not hear the company's appeal of that decision.

U.S. Steel spokeswoman Erin DiPetro said the company was pleased to resolve the "unfortunate dispute" and said the deal "reflects our ongoing and long-term interest in doing business" in Canada. "We intend to be valued corporate citizens in Canada," Ms. DiPetro said in an e-mailed statement.

U.S. Steel took over struggling Stelco in 2007, making promises to Ottawa to maintain jobs and steel production at certain levels. But in the face of a worldwide economic crisis two years later, it announced that it was closing both plants, laying off more than 1,500 workers. (The plants later reopened, although they were plagued by labour disputes that ended with lockouts and deep pension concessions.)

In July, 2009, Tony Clement, then industry minister, said Ottawa would take U.S. Steel to court for violating its pledges. But the company argued that it should not have to live up to promises it made before the financial meltdown.

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Union leaders had harsh words for the deal announced on Monday. "It's outrageous that they can be left off the hook like that after causing all the damage they have to the Hamilton economy," said Rolf Gerstenberger, president of Local 1005 of the United Steelworkers, which represents about 750 workers left in Hamilton and 9,000 retirees.

Lawyers on Bay Street who specialize in the Investment Canada Act disagreed, arguing that the deal actually underlines Ottawa's resolve to force foreign investors to live up to their commitments.

"This appears to be more than a slap on the wrist," said Chris Hersh of Cassels Brock & Blackwell LLP in Toronto.

Mark Katz of Davies Ward Phillips & Vineberg LLP said the deal was by no means a surrender from Ottawa: "This is definitely not a backing down by the government. … The message they are sending is that [foreign investors]had better take this seriously."



With a report from Greg Keenan.





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