Charles Tannock MEP: London’s art market will suffer unless a further exemption from the EU Directive on artists’ resale rights can be secured

Charles Tannock is MEP for London.

London is one of the world’s major art markets and has enjoyed this position for hundreds of years. It dominates the British art market, which itself accounts for just under a quarter of the global market. Buyers and sellers come to London from around the world to trade works of art. Internationally famous auction houses such as Christie’s and Sotheby’s are important to the success of the London art market, but so too are the myriad smaller and specialist auction houses and dealers. Moreover, it is estimated that at least 60,000 jobs depend directly on the UK art market and a similar number on its ancillary trades, many of which are highly skilled and as in-demand as ever.

However, London’s art dealers are likely to be hit hard by the imminent expiry of a special exemption from the EU droit de suite Directive. This Directive, which is based on a domestic French copyright law passed in 1920 and appears in the Berne Convention for the Protection of Literary and Artistic Works administered by the World Intellectual Property Organisation, requires a payment to be made to the artist – or, if the artist is dead, to the artist’s estate for up to 70 years after death – every time a work of art is resold by a gallery or auction house. It does not apply to private sales only when an intermediary is involved.

The amount of the payment is based on the resale price on a sliding scale above a certain threshold, set at €1,000 in the UK (we could have set it at €3,000, the maximum prescribed threshold, but the Labour government was not very sympathetic to the pleas of the art dealing world!).

The idea behind droit de suite, which is well intentioned, is that a young artist who is unknown at the start of his career is likely at the outset to sell his art relatively cheaply but if he is successful the value will increase enormously in later years. The dealers and collectors will therefore make a lot of money, but the artist will have no royalty accruing from their works, whereas other arts e.g. music and literature there are royalties normally paid over time which reflect the original intellectual property or copyright of the artist.

The UK negotiated a 10-year exemption (or derogation in EU jargon) when this Directive came into force at the end of 2001. This derogation required the droit de suite, or artists’ resale right (ARR) as it is legally known in English, to be applied only to the resale of works by living artists. The derogation was then further extended to January 2012.

The prospect of that exemption expiring soon is understandably a matter of serious concern to art dealers in London. I recently visited Dickinson’s gallery in Jermyn Street to learn more about the likely consequences to London of an end to the derogation.

As has been mentioned before, droit de suite originated in France, whose experience provides a salutary lesson for London. Paris enjoyed a pre-eminent position in the world art market in the 1950s and 1960s but France is now a distant fourth as a location for art sales globally, with only six per cent of world sales taking place there.

The globalisation of art sales has enabled auction houses and art dealerships to move sales away from jurisdictions imposing high taxes or onerous add-on charges to the reselling of artworks. Basel in Switzerland and New York in the United States are two of the most developed markets that would stand to gain from tighter regulation in London. However, China is a rapidly emerging market for art sales. Hong Kong has recently overtaken London as the second-largest market in terms of global market share. Auction sales in China last year totalled US$6 billion; more generally, the size of China’s art market has doubled in just two years. Needless to say, neither Hong Kong, New York nor Basel have an ARR system.

To put these statistics in perspective, the European Union’s overall share of the global art market in 2010 was 37 per cent, but just eight years ago that figure was 53 per cent. The UK remains Europe’s largest art market with 59 per cent of the EU total but its global share was 22 per cent in 2010, itself a drop of five per cent in the space of four years. Clearly the extension of the EU droit de suite directive would be likely to accelerate this gradual decline.

The Society of London Art Dealers has recently conducted a survey of its members, which it has forwarded to the European Commission. Although the impact of ARR in the UK is mercifully somewhat restricted by the derogation limiting it to living artists’ works, ARR has still in their view had a negative effect on the London art market. Almost two thirds of dealers in the capital say that up to 10 per cent of their trade has been lost to markets where ARR is not applied. Even as it stands now, the Directive places a heavy administrative burden on dealers and eats into their profit margins because they feel obliged to absorb the cost of the ARR payment from their own commission on the sale. Dealing in ARR-liable works is therefore comparatively unattractive and will become even more so if the derogation is allowed to expire without extension.

The EU’s global share of the market for the works of living artists has declined by 14 per cent in the past three years. The imposition of ARR only partially explains this; external markets have gained share but in Asia’s case, for example, it is also because of a proliferation of high net worth individuals with money to spend on art.

However, the market for the work of deceased artists accounts for just under half of the total global fine art market. It also includes a higher proportion of individual sales above €50,000, which are the most vulnerable to diversion towards markets with lower relative transaction charges. The termination of the derogation would clearly bring with it a far higher risk that sales will be lost to third countries. It is also to be hoped in the longer term that other jurisdictions e.g. USA, Switzerland, China, as members of WIPO, will eventually enact similar ARR measures in their own countries to establish a global level playing field, although the European Commission has done little so far to encourage this.

I am lobbying the European Commission to extend the derogation indefinitely, and I am supporting the Society of London Art Dealers in its efforts to highlight the negative impact that an extension of ARR to deceased artists would have on London. Markets lost are very difficult to win back, so my hope is that the Commission will respond well in advance of the derogation’s expiry. It would be a tragedy for London’s art dealers if the EU once again decided that a one-size-fits-all approach is the only appropriate course of action.