the (negotiated) demand of the largest importers had to be more price elastic than the demand of
the other importers. For simplicity, the demand curve for other importers is assumed perfectly
inelastic.
PA is the initial price at which Brazil exported coffee to the member market and PN is
taken as the opportunity cost of coffee exports. Brazil’s benefit from exporting an additional bag
of coffee to the member market, where PA is assumed constant, was PA - α - PN. Brazil gained
from issuing rebates only so long as the increased rent (area E) from expanding member market
exports (q0 II to q1II) was larger than the export revenue sacrificed on previous exports as a result
of the tax rebate (area A).10 If the value of the rebates issued greatly exceeded a reasonable
estimate of area E-A, the use of export tax rebates must have reduced Brazilian welfare. If so, it
follows that tax rebates were probably used for reasons other than simply to price discriminate.
According to Bacha (Statistical Appendix, 1992), Brazil exported 15.7 million 60 kg.
bags from 1959-1964, systematically underselling its member market quota (which averaged
17.5 million bags) by about 12%, or 1.8 million bags. Since private agents carried out trade,
Brazil must have imposed an export tax greater than PA- PD, thus keeping the export price above
the level that would have allowed the export quota to be filled. Accordingly, an export tax rebate
could effectively lower the international price to favored importers. If the rebate allowed Brazil
to achieve its quota, these favored importers must have increased their purchases from 6.28
million bags (assumed to have been 40% of the 15.7 million bags exported), prior to the rebates,
to 8.08 million bags. The net gain to Brazil depended on the unit export tax rebate that was
required to achieve this increase.
Knowing α, Brazil’s estimated economic gain from aviso use can be calculated as:
10 Revenue was lost only on exports to the favored large foreign importers; other importers did not receive rebates.