Share this Story: Peter Foster: Time to stop 'saving' U.S. Steel Canada
Peter Foster: Time to stop 'saving' U.S. Steel Canada
If this allegedly free-enterprise government were actually in favour of free enterprise and sound jobs it would never have added to U.S. Steel's acquisition burden
Peter Foster
U.S. Steel via Bloomberg News
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.
Peter Foster: Time to stop 'saving' U.S. Steel Canada Back to video
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.
While unionized Stelco is failing, non-unionized Dofasco is profitable
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? Meanwhile it had sunk the BHP Billiton bid or Potash Corp for flagrantly political reasons.
The Conservatives subsequently dropped the U.S. Steel Canada case, but only in return for further dubious commitments, including one to keep plants operating though 2015.
Would that be an election year?
The company has – quite reasonably — laid its woes at the door of those flagging global markets, exacerbated by a decline in Canadian manufacturing (where Ontario's Green Energy Act is yet another negative policy factor) and increased competition from imports, but it is clear that toxic union relations have remained the biggest problem. There have been three lockouts since the Stelco acquisition.
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Industry Minister James Moore's press secretary Jake Enright declared this week that "Our government's thoughts are with the workers and families during this restructuring process." But if this allegedly free-enterprise government were actually in favour of free enterprise and sound jobs it would never have added to U.S. Steel's acquisition burden – much less sued it – in the first place.
Demanding net benefit calculations is in fact not primarily designed to protect workers or families or indeed the health of the economy. It is designed to perpetuate the delusion that the government runs the economy, or is at least stands on guard for workers. It can't, and it doesn't.
Far from showing any sign of repentance for the union's role in this ongoing fiasco, Ken Neumann, Canadian national director for the United Steelworkers, was quoted this week as saying "The government has allowed foreign capital to come in and do as they see fit." Just imagine those filthy capitalists acting as they "see fit" rather than bowing to force.
The closure of U.S. Steel Canada's Hamilton plant — whose blast furnace has already been shut down — will leave a huge site as toxic as the company's labour relations, a monument to the fact that unions "fighting for," and "winning" unsustainable wages and benefits results in everybody losing, including and especially taxpayers.
Nine years ago, when Stelco last sought bankruptcy protection and it looked that it might survive as a Canadian company, while its next-door rival, non-unionized Dofasco, would be taken over by ArcelorMittal, I noted in this space how misguided it was to suggest that Stelco might have been "saved" while Dofasco was being "lost." Non-unionized "lost" Dofasco continues to be profitable. Taxpayers should not be asked to play any part in "saving" Stelco again.
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