March 4, 2009 / 2:48 AM / 8 years ago

Canada issues warning in wake of U.S. Steel layoffs

OTTAWA (Reuters) - The Canadian government issued a warning on Wednesday to foreign companies considering massive layoffs to think twice before backing out of investment agreements made with Ottawa during better economic times.

Industry Minister Tony Clement said the government was investigating to see if U.S. Steel Corp was sticking to commitments it made to Ottawa in 2007 when it bought Stelco, one of Canada's biggest steelmakers.

U.S. Steel announced plans on Tuesday to temporarily shut down most of its operations at two big former Stelco plants in Ontario, affecting up to 1,500 jobs.

"I'm trying to send a signal out through you to every other company out there. We take these undertakings seriously and we expect every company that has made an undertaking to the people of Canada, through the government of Canada, to live up to those undertakings," Clement told reporters.

"We were, I would have to say, surprised by the announcement by U.S. Steel," Clement said.

U.S. Steel said it was temporarily shutting down most of its operations at the plants in Hamilton and Nanticoke. It blamed worsening market conditions.

Ottawa will conduct a quick review of the undertakings the company made under the Investment Canada law when it bought Stelco before determining the government's final position, Clement said, giving no details.

Opposition parties have long accused the government of rubber-stamping foreign takeovers of Canadian companies, without ensuring there are safeguards to protect Canadian jobs.

Vale Inco, the nickel mining and processing division of Brazil's Companhia Vale do Rio Doce, said on Tuesday it would eliminate more than 400 jobs in Canada, in the face of slumping markets.

Clement said initially that he would look into whether Vale was breaking a commitment not cut jobs for three years that it made to Ottawa when it bought Canadian nickel producer Inco. He later said the Brazilian firm might not be breaking the agreement after all.

Some Canadians saw the U.S. Steel plant closures as a sign of U.S. protectionism, a sensitive subject in Canada due to the "Buy American" clause in the Obama administration's stimulus bill.

But Clement dismissed that argument, saying the company had explained to him that it was reacting to the economic downturn.

"They sell steel to cars. Americans aren't buying cars. They sell steel for pipelines. As we know, that part of our industry is not growing right now," he said, adding that he expects the plants to reopen when the economy recovers.

Reporting by David Ljunggren and Louise Egan; editing by Peter Galloway

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