As already suggested in the introductory chapter, structural rules that set the range of policy or strategic options apply equally for firms and States. In order to advance their own objectives, governments use their authority to negotiate and renegotiate basic rules of production and competition with firms and other governments in a triangular diplomacy dynamic, thereby also shaping the characteristics of the industry structure in each national setting. Mass production favored free trade, which enhanced efficiency and reduced the risks involved in foreign production, but many countries used tariff protection as a means to develop a national automotive industry.
Factors that are specific to each national context, such as market size, consumer tastes, or geographic proximity to large markets, are important to understand the negotiating dynamics between States and MNEs. For instance, Canada's relatively small vehicle market was at odds with the US auto makers' mass production strategies. Its vicinity to the US mass market became valuable for Canada's automotive exports, but at the same time it was a constraint to developing a stronger Canadian auto parts industry. Structural elements that limited Canada's policy options also included the dominant position of the US auto makers in North America and the world, the Canadian dependence on those automakers, and the oligopolistic competition in the industry. But the Canadian government overcame these limitations through a liberal and pragmatic approach to the industry's development that led to the gradual integration of the Canadian auto industry into that of the United States.
That approach created a basic convergence of interests between Canada and the US Big Three, because it did not fundamentally restrict mass production practices. But the game of triangular diplomacy, however, was clearly established: despite the common interests between Canada and the auto makers, the oligopolistic industry dynamics aggravated the sovereign risks associated with tensions between the US and the Canadian governments over trade agreements and limited the full rationalization of the Canadian auto industry on a continental basis
Finally, since Ford kept a leadership position for decades in the Canadian auto industry, there were different moments when the company had a key role in that industry's development. At the same time, Canada's liberal approach to the auto industry's development was important in Ford's overall competitive performance.
-30-
