Modern Economy, 2011, 2, 31-38
doi:10.4236/me.2011.21005 Published Online February 2011 (http://www.SciRP.org/journal/me)
Rent-Seek i n g , Trade Policy an d E conomic Welfare
Fernando Antônio Ribeiro Soares1, Tito Belchior Silva Moreira2
1Brazilian Ministry of Defense, Brasília, DF, Brazil
2Department of Economics, Catholic University of Bra s ília, Brasília, DF, Brazil
Received December 6, 2010; revised December 25, 2010; accepted December 30, 2010.
Abstract
The objective of this paper is to assess the impacts that rent-seeking arising from government intervention in
international trade has on welfare. More specifically, the focus is on how the granting of special import re-
gimes promotes rent-seeking practices, which have negative effects on welfare. We present two concepts of
nominal protection: legal tariffs and the actual import tariffs. In addition, we construct three measures of
welfare: from the legal tariff; from the actual import tariffs; and from the actual import tariffs when
rent-seeking is present. Finally, we compare the various measures of protection in terms of their impact on
welfare. The results show that trade policies based on exceptions - such as those establishing the special im-
port regimes - tends to decrease welfare.
Keywords: Legal Tariffs, Actual Import Tariffs, Welfare, Rent-Seeking
1. Introduction
The effects that imposing an import tariff have on trade
and, consequently, on the level of welfare, have been
broadly discussed in the literature [1-6]. Statically speak-
ing, the results obtained indicate that a reduction in the
levels of welfare arises from protection costs, which stem
from various factors, including resource allocation, fail-
ure to obtain significant economies of scale, and the loss
of consumption opportunities. However, such welfare
losses might be reduced by using trade policy instru-
ments that reduce the effects of import tariffs. In this
paper, we will highlight special import regimes aimed at
reducing the level of nominal protection as examples of
such instruments. It can be said that these special re-
gimes, when acting as tariff rate reducers, tend to reduce
the import burden, thereby encouraging importation.
Given the capacity of special regimes to reduce the
tariff burden on foreign trade, it would be feasible to
evaluate whether this hypothetical economy would ob-
tain welfare gains in relation to an economy in which the
import tariffs are charged in full. However, the results of
this evaluation are significantly modified when we draw
correlations between the special regimes and rent-seek-
ing activity. Specifically, the demand for special import
regimes would shift resources from production to rent-
seeking activities, which would negatively offset the wel-
fare gains obtained through the implementation of such
special regimes. As observed by [7], there would be re-
source expenditure aimed at the transfer of wealth, rather
than at the creation of wealth. The use of resources in
order to obtain this transfer would lead to welfare losses.
Since special import regimes represent state interven-
tion in trade policies, they create a favorable environ-
ment for the development of rent-seeking activities. In
other words, given the possibility of obtaining income
from import regimes, resources will be spent in an un-
productive manner. Consequently, the development of
policies through partial import tariff reduction, rather
than having positive effects, can lead to welfare losses,
which are the central focus of our analysis.
The remainder of this paper is organized as follows:
Section 2 describes and analyzes the nominal protection.
Our analysis focuses specifically on the nominal protec-
tion provided by legal tariffs and the actual import tariffs.
Section 2 also introduces the concept of special import
regimes, which, in turn, will be considered in the con-
struction of the actual import tariffs. Section 3 assesses
the impact that the imposition of nominal import protec-
tion has on the level of welfare. The analysis will be
based on two alternative constructs of nominal protection:
legal tariffs and the actual import tariffs. Section 4 in-
troduces the concept of rent-seeking and relates it to the
special import regimes. Section 5 discusses how the
analysis of welfare is altered by incorporation of the rent-
seeking arising from special import regimes. Section 6

F. A. R. SOARES ET AL.
32
presents our conclusions.
2. Nominal Protection wit hin Special Import
Regimes
Nominal protection is related to government intervention
in trade policies, through which protection against com-
petition from imported goods is granted to domestic
productive sectors. As we will see further in this article,
the use of this mechanism generates distortions in the
functioning of the economy, which in turn have a nega-
tive impact on welfare.
This article will address nominal protection from two
viewpoints: that related to legal tariffs and that related to
the actual import tariffs.1 There are differences between
these two protection mechanisms in terms of their func-
tion and different effects on the level of welfare.
According to the legal tariff criterion, nominal protec-
tion can be defined as the percentage excess of domestic
prices in relation to the prevailing prices worldwide, as
the result of the application of a measure of protection,
such as an ad valorem import tariff or a specific import
tariff. Since the ad valorem import tariff is the most
commonly used mechanism, we have adopted it as the
measure in the present analysis. Therefore, supposing
that the ad valorem tariff is the only protection mecha-
nism and that this tariff is not prohibitive, one can define
the price of an imported good as equal to the sum of the
import value (at international prices) plus the value of the
tariff, and nominal protection will be expressed as a per-
centage of the imported value, as outlined by [8]:


1
ii i
PP* t (1)
where i
P denotes the domestic price of the good i, *
i
P
denotes the international price of the good i, and i
t de-
notes the level of nominal protection of the good pro-
vided by the legal tariff.
Therefore, the following expression is obtained for the
nominal protection defined by the legal tariff
*
*
ii
ii
PP
tP

 (2)
Legal tariffs, as measures of protection, have various
problems, although the discussion of such problems is
beyond the scope of this paper. For example, special im-
port regimes are not considered in the construction of
legal tariffs. They distort and overestimate this measure
of protection. Special import regimes are government
concessions made to firms or industries, so that those
firms and industries can import products at partially re-
duced import tariff rates.2 In other words, the special
import regimes represent a tariff exemption on imports.
Given the previous discussion, it is necessary to obtain
a measure of nominal protection that considers the effect
of the special import regimes. To that end, the actual
import tariffs will be constructed.3 This measure of pro-
tection considers not only the effects of legal tariffs, but
also the portion reduced by the special import regimes.
Therefore, as observed by [9], “(···) the actual import
tariffs subtracts the effects of the special import regimes
from the legal tariffs, providing a more robust measure
of protection. In other words, the actual import tariffs
subtracts the effects of the reduction and exemption from
the import tariff, thereby allowing a more accurate
measure of protection to be estimated.”
The domestic price of the imported good, under the
actual import tariffs, can be determined through the lin-
ear combination of the imports levied by legal tariffs and
those also levied by legal tariffs obtaining reductions due
to special regimes:
 


´*111,0 1
rei
ii iiii
PPtP* tt  


 
(3)
where i
P

denotes the domestic price of good i im-
ported under the special import tariff regime, and rei
i
t
denotes the tariff reducer formed from the special import
tariff regime concerning the imported good. Thus,


rei
ii
tt represents the legal tariff reduced by the spe-
cial import tariff regime.
The nominal protection provided by the actual import
tariffs can be determined through the linear combination
of the legal tariff and the legal tariff reduced by the spe-
cial import tariff regime:




1, 01
vrei
ii ii
tt tt  

  (4)
where v
i
t denotes the actual import tariffs on the good i.
3. Effects of Tariff Protection on Welfare
with Special Import Regimes
As previously stated, the effects that import tariffs have
on welfare are discussed extensively in the literature on
international trade. These analyses are based, primarily,
on static arguments. One of the most important studies in
this area is that conducted by [1]. That study demon-
strated that interference with international trade tends to
1A third criterion to assess nominal protection would be the implicit
tariff or the comparison of international prices. Under this criterion, the
p
rotection granted to the domestic productive sectors is obtained
through the difference between internal and external prices.
2For this article, we will assume that special import tariff regimes are
obtained by firms or industries through demand from government
agencies. In practice, special import tariff regimes can be obtained by
firms or industries (productive sectors) and can even favor a certain
geographical area of the country or contain other specific considera-
tions.
3The actual import tariff is defined as a ratio between the amount o
f
im
p
ort tariff collected and the value of the im
p
orts.

F. A. R. SOARES ET AL.
33
distort the national and international allocation of re-
sources. As a consequence, the availability of goods is
lower than it could be with better resource allocation. In
this context, international trade restrictions will generate
losses related to consumption opportunities, which pri-
marily reduces the consumer surplus and the surplus in
productive export sectors. We can also cite the losses
arising from the failure to obtain significant economies
of scale, as detailed by [10-12].
This article will focus on the analysis of welfare losses
deriving from tariff-induced distortions in decisions re-
lated to consumption and production. However, in our
analysis, we will assess not only the effects of legal tar-
iffs on the level of welfare, but also the effects of the
actual import tariffs. We will show that these two factors
have different effects on the level of welfare.
The model proposed by [13] will be used in order to
measure the levels of welfare derived from nominal pro-
tection. Feenstra decomposes the effects that trade poli-
cies have on welfare into four possible channels: 1) dead-
weight losses arising from distortions in consumption
and production; 2) possible trade gains obtained from
terms of trade; 3) gains or losses arising from changes in
the production scale of firms; and 4) gains or losses aris-
ing from changes in the profits among countries.
This study will examine the variations in the level of
welfare arising from the distortions of consumption and
production caused by the levying of an import tariff.4
First, the following equation for determining the varia-
tion in the level of welfare will be applied:

*
ii i
i
dBPP dM
 (5)
The term on the left-hand side denotes the variation in
the welfare, while that on the right-hand side denotes the
loss of economic efficiency resulting from a change in
the volume of imports

i
dM .
First, as presented by [13], the legal tariff to be applied
to a single good will be considered, and it will be as-
sumed that the prices of other goods remain constant.
Eliminating the terms in subscript, Equation (5) can be
rewritten as follows:

*
dB dPdM
dMP P
dt dtdt




(6)
Analyzing the first term on the right-hand side of
Equation (6), we have 0dPdt , given that an import
tariff tends to increase the domestic price of the imported
good, and 0dM . The second term on the right-hand
side presents

0PP* , resulting from positive legal
protection of the economy. On the other hand, an import
tariff (legal tariff) makes imported good more expensive,
reducing the imports, which implies that 0dM dt

.
Consequently, the application of a legal tariff on imports
results in a reduction in the level of welfare (i.e.,
0dB dt

). Using Equation (3) in Equation (5), taking
into account not only legal tariffs but also the effects of
the special import regimes, we obtain the following
equation for variation in levels of welfare:


´*
ii i
i
dBPP dM


 (7)
In contrast with the [13] model, the actual import tar-
iffs to be applied to a single good and the prices of other
goods will remain constant. Eliminating the terms in
subscript and making use of Equation (4), Equation (7)
can be rewritten as follows:

vv v
dB dPdM
dMP P*
dt dtdt




 



 (8)
Rewriting Equation (8) in order to decompose the ef-
fects that legal tariffs, as well as legal tariffs partially
reduced by special import regimes, have on the level of
welfare, we obtain the following equation:
 



1
,01
v
rei rei
dB dPdM
dMP P*
dt dt dt
dP dM
dMP P*
dt tdt t









 



(9)
Analyzing the effects of a legal tariff on imports under
special regimes has on the level of welfare, the results
obtained differ from those obtained using Equation (6),
which measures only the impacts of legal tariffs.
The interpretation of the first and second terms on the
right-hand side of the Equation (9) is identical to that of
Equation (6). However, whereas the analysis in Equation
(6) is for all imports, the analysis in Equation (9) is for
only part

of the imports. On the other hand, due to
the special import regimes, the third and fourth terms on
the right-hand side of the equation will imply a relatively
smaller negative variation in the level of welfare than
that represented by the variation deriving from the appli-
cation of legal tariffs. This issue deserves further discus-
sion.
Although the application of a legal tariff on imports is
partially reduced by the special regimes, it has fewer
negative effects on welfare than does the full application
of legal tariffs. The necessary, sufficient condition for
this is that v tt. In other words, supposing a situation
in which all goods are imported under the special import
regimes (assuming that 0

), we therefore have,
4In our analysis, we will consider a small economy open to trade and
therefore not capable of influencing international prices. In addition, the
analysis of welfare will focus on the distortions in consumption and
p
roduction, keeping constant, by simplicity, the terms of trade.

F. A. R. SOARES ET AL.
34




rei rei
dPdM dPdM
dMP P*dMP P*
dtdt dt tdt t



 




,
in module, and, consequently, BB
 , that is, the nega-
tive variation in the level of welfare is lower under spe-
cial import regimes.
Advancing and defining the above discussion, we can
state that the granting of a special import regime by the
government would not necessarily change the domestic
prices of the imported goods, given that nominal protec-
tion is defined by the marginal import tariff and not by
the mean import rate. Therefore, the collection of taxes
on trade would be transferred from the government to the
beneficiaries of the special import regimes. From this
standpoint, rather than an alteration in the level of wel-
fare, there would be a mere transfer of income.
Tariffs cuts, however, can lead to a decrease in the
prices effectively paid by the importers and thus to al-
terations in the level of welfare. The introduction of the
special regimes could result in part of the nominal pro-
tection becoming redundant,5 which would lead to the
use of nominal protection that is effectively lower than
that declared (legal tariff), as argued by [14]. Prices
would fall, imports would increase, and goods would be
imported within the parameters of the special import
regimes. Therefore, Equation (9) would be converted
into the equation below, where α is equal to zero:



vrei rei
dB dPdM
dMP P*
dt dt tdt t


(10)
where tv, in this case, is the nominal protection without
tariff redundancy.
In summary, the special import regimes would reduce
nominal protection, which would then reduce the distor-
tions in consumption and production. As a result, the
level of welfare might be higher than when such regimes
are not in place.
4. Effects of Tariff Protection on Welfare
with Special Import Regimes and
Rent-Seeking
Rent-seeking activity is not aimed at obtaining income
through the development and creation of productive ac-
tivities. On the contrary, the objective of rent-seeking is
to receive income, and, to that end, expend resources in a
nonproductive manner, through relationships with public
agents in general and by using the discretionary power
on the part of such public agents6 to take advantage of
and legal loopholes, regulatory exceptions etc.7 Discus-
sions of rent-seeking that focus on international trade
analysis, the object of this article, can be found in
[20-25].
As stated by [20], rent-seeking stems from govern-
ment restrictions on economic activity, such restrictions
or interventions generating income that is, in turn, de-
manded by the economic agents. Competition for such
income among the economic agents induces the shifts
resources from productive activity to rent-seeking activ-
ity, thereby making it more costly for society as a whole.
Again according to [20], such competition can be either
legal or illegal. When rent-seeking involves illegal ac-
tivities, it takes the form of bribery, corruption smug-
gling and so on.
Rent-seeking related to international trade (imports)
was defined by [9] as “(···) unproductive activities that
commence when the economy presents high levels of
protection for its productive sectors. Such activities in-
clude smuggling, under-invoicing by importers, lobbying,
procurement of import licenses through the solicitation
of government employees connected to foreign trade,
competition for special import regimes etc.”8 One of the
forms of rent-seeking behavior, as seen in [21], is the
allocation of time and resources by firms or their repre-
sentatives in attempts to obtain concessions such as im-
port licenses. This form of rent-seeking will be discussed
and adopted as a measure in this article.
The analysis made in the previous section showed that
the goods imported with the tariff reduction provided by
special import regimes have fewer negative effects on
welfare. These results, however, do not consider special
import regime incentives to rent-seeking activities.
Exploring the condition presented in the previous
paragraph, we should consider that the firms, or their
representatives, will expend resources in attempts to in-
fluence the government bureaucracy in order to obtain
import permits under special import regimes. In addition,
a fixed number of permits will be considered. In order to
import under the special import regimes, firms will com-
pete for a limited number of permits, which gives rise to
competitive rent-seeking.9 Furthermore, rent-seeking will
supposedly occur only in relation to the goods imported
under the special import regimes.10
Based on the considerations above, Equations (7) and
5We would then have effective a
pp
lication of the actual im
p
ort tariffs.
6Rent-seeking does not necessarily involve public agents. However, in
the case of trade policies, there is a high probability that representatives
of the public sector are involved. One good example of this was the
p
rocurement of import licenses, through import substitutions, during
the industrialization in Brazil, especially in the 1950s.
7Detailed definitions and analyses of rent-seeking can be found in [15-
19].
8Emphasis added.
9This premise is highly relevant to the operation of the model.
10This supposition might constitute a significant limitation of the model
However, facts related to international trade show that it coincides with
events occurring today. Given that most legal tariffs are subject to
regional and multilateral agreements, such as those mediated by the
World Trade Organization, the nation-states find strong resistance to
the alteration of such tariffs.

F. A. R. SOARES ET AL.
35
(9) will be altered so as to include the effects of rent-
seeking. Therefore, the following equation presents the
variations in the level of welfare, taking into account the
effects of legal tariffs, of legal tariffs partially reduced by
special import regimes, and of rent-seeking derived from
special import regimes.



*rei
t
ii iii
rei
ii
t
n
dBPPdM1Y Y
L


  

(11)
where i
n represents the firms that import the good i;
rei
i
L represents the licenses, or permits, in a fixed num-
ber, for the import of goods under the special import re-
gime of the good i; i Y is the income related to the pro-
ductive activities arising from the good i (trade, distribu-
tion, etc.), and rei
i
Y represents the resources expended
for obtaining the permits related to the special import
regime, that is, the resources allocated for rent-seeking.
We can conclude that

rei
ii
YY corresponds to the
portion of income originating from the shifting of re-
sources from production to rent-seeking.
The equation below can be obtained by applying the
actual import tariffs (nominal protection without tariff
redundancy) to Equation (11) and eliminating the terms
in subscript:




vrei rei
rei
rei rei
dB dPdM
dMP P*
dt dt tdt t
dYY
n
Ldt
 



(12)
Analyzing the effects on levels of welfare from the
adoption of the actual import tariffs in the presence of
rent-seeking, the results will be altered when compared
with those obtained in Equations (6) and (10). The inter-
pretation of the first and the second terms on the right-
hand side of Equation (12) is identical to that of those
subjacent to Equation (10). The third term, however,
requires additional considerations. That term represents
the rent-seeking originating from the special import re-
gimes, which tends to have additional negative impacts
on the level of welfare.
Analyzing the term resulting from rent-seeking, we
conclude that n and rei L are positive. On the other hand,

0
reirei
dY Ydt
, given the possibility reducing
their tariff burden on imports through special import re-
gimes, firms will expend resources in order to obtain
permission to import under such regimes. Resources will
consequently be allocated to unproductive activities, thus
reducing

rei
YY. So when rent-seeking is present,
the introduction of the special import regimes will gen-
erate additional losses of welfare.
Finally, the three hypothetical situations presented in
the article can be compared. When rent-seeking occurs
because of special import regimes, the actual import tar-
iffs is not preferable than legal tariffs in terms of welfare.
In the presence of rent-seeking, the actual import tariffs
will be strictly preferable to legal tariffs only in the
following condition.





*
rei rei
rei
rei rei
dP dM
dMP P
dt tdtt
dYY
dPdM n
dMP P*
dtdt Ldt








 
 





(13)
Assessing the condition above, and taking into account
the event that the economy is under competition among
firms for rents arising from a fixed number of import
permits under special import regimes, we can conclude
that the welfare gains related to the actual import tariffs,
in comparison with legal tariffs, can disappear completely
when rent-seeking is present. In addition, since rent-seek-
ing has been increasing in relation to the number of firms,
the economy might be in a worse situation than that in
which there are only legal tariffs on imports.
The previously cited hypothesis - that there are a fixed
number of import licenses under special import regimes -
needs special attention. Underlying this (highly plausible)
hypothesis is the possibility that the number of licenses is
lower than is the demand for import under conditions
favored by the special import regimes. Therefore, there
will be effective competition, as well as unproductive
expenditure of resources for the procurement of licenses,
although not all petitioners will obtain such licenses. As
a result, as stated by [18,19], the total amount expended
in the procurement of the premium might be higher than
the value of the premium itself. In the proposed model,
in order for the welfare losses resulting from rent-seek-
ing to be greater than the effects that tariff reduction has
on international trade - in view of [7,18,19] - the number
of “players” need only be sufficiently higher than the
number of licenses that will be made available by the
official foreign trade agency of the country.11 Therefore,
in observing Equation (13), the higher the ratio between
the number of firms (n) and the number of import li-
censes (Lrei), the greater the practice of rent-seeking is
expected to be, along with the ensuing adverse effects of
the special import regimes on the level of welfare.
5. The Cost of Rent-Seeking and the
Brazilian Case Equations
Other considerations can still be made regarding the
11Another relevant factor would
b
e the marginal cost of influencing the
chances of obtaining an import license under the special import re-
gime.

F. A. R. SOARES ET AL.
36
proposed model. Ideally, the validity of a mathematical
representation should be tested empirically, and this is
also important for the case in question. Taking into con-
sideration Equation (13), the terms on the left-hand side
of inequality could be obtained, for instance, by using the
triangles devised by [1].12 The terms on the right-hand
side of the equation, however, are more difficult to ob-
tain empirically. A measure of the incentives of the eco-
nomic agents for the expenditure of resources in rent-
seeking, arising from the introduction of a special import
regime, would be necessary. It would be necessary to
determine at least the number of firms engaged in seek-
ing the rents; the expected value of the rents, and the
chances involved, as well as the costs deriving from the
attempt to capture income.13
However, the valuation suggested in the previous
paragraph is not easily collectable, so as to provide em-
pirical data. Discussing the effects of rent-seeking on
welfare, [20] also affirmed that the various forms of
competition for rents are, by nature, difficult to observe
and quantify. In addition, [20] stated that the empirical
results obtained can be questioned.14
The empirical difficulty related to the valuation of
rent-seeking is mitigated by the qualitative results that
can be obtained. A fixed number of import licenses un-
der special import regimes will give rise to competitive
rent-seeking behavior, as has been seen. The motivation
for such behavior is the premium; in this case, the im-
porting of goods at partially reduced duties via the spe-
cial import regime. Therefore, the resources will be di-
rected toward obtaining the premium rather than toward
expanding the availability of goods and services. Ineffi-
cient allocation of resources, having negative impacts on
welfare, will result. In the model constructed, if the ex-
penditure for the capture of rents is greater than the wel-
fare gains attributable to the goods imported under the
special regimes, there will be welfare losses.15 However,
if the introduction of the special import regime does not
alter the domestic price of the imported goods or the
volume of imports16 - there being a mere redistribution of
resources from the government to the importers - greater
rent-seeking activity can be expected. This would derive
from the fact that the rents had been fully appropriated
by the importers.17 Otherwise, the premium deriving from
the special import regime would be higher, as would the
investment in the capture of income, the result of which
would be greater deterioration in the level of welfare.
Returning to the discussion of the Brazilian case, we
can assume that the special import regimes had greater
importance prior to the 1990s, before trade liberalization.
During that period, imports were limited due to problems
relative to external restrictions - imbalances in transac-
tion accounts - as well as to industrial policy objectives,
specifically import substitution.18 In the scenario prior to
the lifting of trade barriers, special import regimes effec-
tively made imports feasible.
Currently, with the trade liberalization in terms of
quantum of imports, special import regimes have lost the
importance.19 The liberalization of quantity of imported
goods, despite increasing the degrees of freedom, does
not rule out the discussion of prices. Therefore, if the
agents, in attempts to maximize their results, are able to
reduce the price paid for the imported goods, they will do
so, provided the cost incurred in obtaining the tariff re-
duction (rent-seeking through foreign trade) is lower that
the effective tariff reduction.20
6. Conclusions
Government decisions regarding the trade policy to be
adopted take on added importance due to their impact on
the level of welfare. Each of the possible policies, as well
as each combination of such policies, has different ef-
fects on the economy. The optimal choice should obvi-
ously favor the maximization of the level of welfare. If
12The equation below could be applied as a proxy for the variations in
the level of welfare resulting from a tariff variation deriving from the
imposition of a special import regime:

11
1, 1,2,
2
nn
ttt
tt
dWdM dtt,n


 


 
where dW represents the variations of the level of welfare; dM repre-
sents the variations in the value of imports, and dt represents the varia-
tions in the import tariff rate, including those occurring under the effect
of special import regimes.
13References [26-28] established that the total rent-seeking expenditure,
on competitive balance, will be equal to the expected amount of the
rents. However, this outcome is not assured if the number of petitioners
outweighs the income available. That is to say, some agents would
have a positive return on their investment (rent-seeking) and would
capture income, whereas others would have a zero return, meaning that
they would not capture income despite the investment.
14According to [20], a tariff has both production and consumption costs
and it has been shown that rent-seeking entails costs in addition to
those of a tariff: “Many forms of competition for rents, however, are by
their nature difficult to observe and quantify and one might therefore
question the empirical content of the result so far obtained.” (Emphasis
added.)
15In the event of tariff redundancy.
16In this case, the tariff redundancy would not be provoked.
17Lower prices are not passed on to consumers.
18In fact, external restrictions and the import substitution model are
closely related. Among other factors, a lack of balance-of-payment
equilibrium justified the adoption of the import substitution model in
the 1930s.
19According to [29], the principal special import regimes currently in
existence are those that benefit export activities. Among such regimes
are the drawback regime, the Regime Aduaneiro Especial de Entre-
p
osto Industrial sob Controle Informativo (Recof, Special Customs
Regime of Industrial Warehousing under Information Control), the
industrial production in the Free Trade Zone of Manaus, and the auto-
mobile industry.
20On the basis of [26-28] devised an axiom showing that, in the
long-term competitive balance, the total value of rent-seeking expenses
will be equal to that of the rents expected.

F. A. R. SOARES ET AL.
37
the intervention is suboptimal, trade interventions should
be aimed at minimizing welfare losses.
This study has presented two measures of government
intervention in foreign trade and has specifically dis-
cussed the nominal protection afforded by legal tariffs.
Another measure of nominal protection has also been
shown. That measure was constructed on the basis of the
actual import tariffs, which differs from measures based
on legal tariffs in that it considers the effects of the spe-
cial import regimes
Two measures of welfare have been created, one based
on legal tariffs and the other based on the actual import
tariffs. The actual import tariffs, due to the tariff reduc-
tion provided by the special import regimes, initially
proved to be a more efficient trade policy measure, ac-
cording to the criterion of welfare. Within this context,
one could say, in principle, that the resources not with-
held by the government (i.e., those transferred to the pri-
vate sector) - from the standpoint of their effect on wel-
fare - simply constitute income redistribution.21 However,
the resources allocated in order to redistribute income
redirected to importers could be deemed to have been
expended in an unproductive manner, thus negatively
affecting social welfare.
Therefore, special import regimes stimulate firms to
engage in rent-seeking activities, motivating them to
transfer resources to such activities. Due to the competi-
tion for the right to import goods under the special re-
gimes, there is unproductive expenditure of resources.
Consequently, as the result of rent-seeking, the protec-
tion provided by the actual import tariffs, in terms of
welfare, can be worse than that provided by the legal
tariff.
Special import regimes can cause other economic im-
balances. Such imbalances would originate from the im-
port tariff (legal tariff) exemptions themselves. These
(non-linear) exemptions would create distortions in the
price structure, thereby resulting in inefficient allocation
of resources. The loss of economic efficiency would re-
sult in additional welfare losses, which should be added
to those resulting from rent-seeking activities.22 There-
fore, we can conclude that the trade policies of a country
should not be founded on the concession of special re-
gimes, exemptions, and exceptions. The elimination of
such mechanisms would allow greater transparency,
simplification of the procedures, and clarification of the
incentives, all of which would lead to the greater eco-
nomic efficiency and hence to a higher level of welfare.
In conclusion, we have discussed the effects that the
norms imposed by government agents, as well as the
ensuing rent-seeking, have on welfare. The discussion of
trade policies is currently of less importance than it has
been in previous periods, especially between the 1930s
and the 1980s - prevailed when, for example, import
substitution in Latin America countries. Nevertheless,
there is scope for analysis. In addition, in assessing its
importance as a line of research to be pursued in future
studies, one must consider that the mechanism addressed
in this article and its framework can be adapted to other
aspects of economy and society.
The instrument can be applied to various elements in
discussions of the government agenda. As examples, we
can cite the environmental, industrial, and regulatory
policies for which the delegation of infrastructure to the
private sector (concessions and privatization) is currently
the focus of vigorous debate. Finally, we can conclude
that the regulatory and normative activities of the govern-
ment remain in place, allowing the continued existence
of potential loopholes for rent-seeking practices and their
potential effects on welfare - all that changes is the forum
for discussion.
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