East Meets Rust, And Sparks Fly

Johnstown, Pa., known for its killer flood and languishing steel industry, needed help in a hurry. It was October, and Bethlehem Steel Corp. had announced it was shutting down its unprofitable bar, rod, and wire operation, the town's biggest employer. That meant 1,500 high-paying jobs would be disappearing from the town of 28,000 unless a buyer could be found. But any new owner would have to invest heavily--and reach an accord with the United Steelworkers.

When help came, it was from a most unexpected quarter: Late last year, Ispat Group, an Indonesian steel company owned by Calcutta's Mittal family, which began trading steel 30 years ago, signed on to buy and plow up to $150 million into the unit's three plants.

But what promised to be an unusual marriage quickly degenerated into a series of prenuptial spats. USW President Lynn R. Williams and Ispat Vice-Chairman B.C. Mittal have failed to bridge the cultural chasm that divides them. "It would be a mistake to be too optimistic," says Pennsylvania Commerce Secretary Andrew T. Greenberg.

PAINTING DEVILS. That's a far fall from the hopes the deal inspired in the beginning. With Bethlehem picking up the health and pension tab for its retired workers, Ispat faced low costs. What's more, the State of Pennsylvania agreed to chip in as much as $15 million in grants and worker training. With the plant already closed, it seemed, workers would jump at $8- to $13-per-hour jobs, though Ispat would be paying $3 or $4 less than Bethlehem.

But problems quickly appeared. Ispat, say sources close to the company, viewed the Bethlehem division as wide open for change. It figured it could scuttle Bethlehem's work rules and hierarchy and run the unit like a U.S. minimill. The Steelworkers, however, viewed deviations from the Bethlehem contract as concessions. Things fell apart in February, when local newspapers accused the union of poisoning the deal to keep wages up at other USW shops. Union leaders were outraged.

As negotiations broke down, Pennsylvania Governor Robert P. Casey and U.S. Representative John P. Murtha of Johnstown--both longtime USW allies--tried to pull the two sides together. The union finally accepted Ispat's lower pay scale. But Ispat refused one of the union's conditions: that after three years, the private company open its books and share profits. Nonetheless, in March, the Indonesian company renewed talks, which are still going on.

Johnstown's future hangs in the balance. The question now is whether Ispat is ready to adapt to pro-union Johnstown.