In March, U.S. Steel announced plans to temporarily shut down most of its operations at two big former Stelco plants in Ontario, affecting up to 1,500 jobs. It blamed adverse market conditions for decision.
Industry Minister Tony Clement said he expected U.S. Steel to stick to undertakings it had given on capital expenditures, research and development, and production.
"We have a number of options that are available to us, including unwinding the deal, seeking court penalties of C$10,000 ($8,500) per day and seeking a court ruling that would force a rectification of the situation to the deal that was signed," he told reporters.
"What I'm signaling to you is I take these agreements seriously. When you have signed a deal with the Canadian government to invest in Canada we expect you to honor the deal ... we're taking this very seriously, and I will act to defend the interests of Canada."
Clement said he had sent U.S. Steel a letter demanding it stick to its obligations. The firm has 10 days to respond.
Ottawa can take the U.S. company to court if it feels it has not lived up to its undertakings.
According to the Investment Canada Act, the court can direct "the non-Canadian to divest himself of control of the Canadian business on such terms and conditions as the court deems just and reasonable".
It can also impose fines of C$10,000 a day on any company deemed to be in contravention of the act.
Opposition parties complain that Ottawa routinely approves foreign takeovers of Canadian companies, without ensuring there are safeguards to protect jobs.
Clement said the government was still reviewing a March decision by Vale Inco, the nickel mining and processing division of Brazil's Companhia Vale do Rio Doce , to cut more than 400 jobs in Canada due to slumping markets.
Vale had committed not to cut jobs for three years when it bought nickel producer Inco in late 2006.
Ottawa has already come to a deal with mining group Xstrata Plc, which said in February it would restructure its Sudbury, Ontario, nickel operations and cut 686 permanent jobs.
After Ottawa questioned whether Xstrata was breaking its obligations made when it bought Falconbridge in 2006, the Swiss-based firm committed to spend hundreds of millions of dollars on other projects.
"We came to an understanding based on future investments that they were willing to put in writing, rather than just in their annual report," said Clement.
($1=$1.17 Canadian)
