Nonetheless, the value of export tax rebates increased rapidly after 1969 and soon
exceeded even this higher level, e.g., the value of the avisos emitted averaged $86 million
annually in 1971-72.13 Then, even though the ICA lapsed between 1972 and 1979, the amount
of export tax rebates to the same few favored international roasters rose further, averaging $277
million per year (see Table 1) during this period. Note that the size of area E in Figure 2 depends
importantly on the existence of a large difference between the export price of coffee and the
marginal cost of production, a difference that depends importantly on the existence of an export
quota and a quota rent. Since there was no quota from 1972 to 1979, and thus no such price
differential between the export price and the marginal cost of production, the rebates could not
play any role in price discrimination. They simply reduced the net export tax.
Widespread allegations of corruption associated with the “special deals” caused the IBC
to abandon the secret discriminatory contracts in 1979 (Bacha, 1992). The government
considered proposals to abandon the use of a Minimum Registration Price and other aspects of
the government’s coffee management policy, including export rebates, and move instead toward
a free market system. This recommendation was rejected “at the highest level of government”
(Bacha, 1992) and a decision was instead made to continue use of the Minimum Registration
Price, along with the export tax rebates. The IBC then initiated new “standard contracts” under
which all importers were to be provided a rebate whenever the Minimum Registration Price
exceeded a weighted average of the international prices of Brazil’s competitors (Other Milds and
Robusta).
This standard contract was justified as being necessary to ensure that Brazilian exports
remained competitive even when the Minimum Registration Price was set above the world price.
13 The annual estimates are adjusted to account for changes in international prices, though these were small
throughout this period. The volume of exports also showed little year to year variation.
10