Article extracted from “Art Market 2017” reported by Art Basel and UBS Report, prepared by Arts Economics.
The UK market retained its place as the second largest market worldwide in 2016 with a share of 21%, just marginally ahead of China, which had overtaken the UK in terms of sales values for five years (from 2010 through 2014). The UK’s unexpected vote in June 2016 to leave the European Union caused much speculation about the effects Brexit would have on the art market. While Article 50 will only be triggered in March 2017, the impact this might have on the art trade and on the future of European regulations and polices such as import VAT, resale royalties and other charges in the UK will take considerably longer to emerge. The main immediate effect of the vote in 2016, besides some more general increasing economic uncertainty, was a rapid weakening of the currency. After a dramatic swing to a 30-year low immediately following the vote, the Sterling to US Dollar exchange rate remained volatile during 2016, losing a total of 20% in the period from January to December 2016.2 This deterioration potentially helped to boost international sales in the UK, with buyers from the US and elsewhere finding better value at sales at fairs and auctions in the latter half of the year. The market as a whole still dropped 12% year-on-year to reach $12.0 billion, although this was due in part to the decline in the Pound. Currencies aside, like the US, the fine art auction sector showed significantly poorer results in the UK in 2016
than the previous year.
The level of sales reached in the UK in 2016 was 18% lower than ten years previously. The growth in sales since the market’s lowest point in the last decade in 2009 was also less than half of the rate of the US market (although double that of the EU). China gained 1% in share annually, accounting for 20% of global sales by value and maintaining third place in the global ranks. China’s total sales dropped 2% year-on-year reaching a total of $11.5 billion (from $11.8 billion in 2015).
Elsewhere in Europe, performance was mixed, but most of the larger markets showed low to moderate declines in sales, which were not overly affected by currency conversions with a much more stable US dollar / Euro exchange average over the year. France was again the fourth largest market worldwide with a slight increase in share (1%) to 7%. Despite a positive year for some of the major auction houses, mixed performance elsewhere and stagnant dealer sales caused aggregate sales to fall by 3% to just over $3.9 billion. The EU market as a whole declined by 10% (to $19.2 billion), and its global share of value was stable at 34%, having fallen 11% since 2006. Within the EU, the hierarchy of sales remained
stable, and the UK was once again the largest market by a considerable margin. The UK accounted for 62% of the value of sales in the EU, France remained in second place with a 20% share and Germany was in third place with 5%.
The exit of the UK from the EU would clearly affect the measurement of this market substantially: the EU market without the UK accounted for just 13% of global sales in 2016. While sales in the EU have grown 12% since the low point of 2009, measured without the UK, sales would, in fact, have fallen by 11% in the region. Many of the nations in the EU are highly dependent on buyers and inventory from the UK as well as providing rich source markets for this leading European hub. Although the UK will have to negotiate new trade agreements with the EU, the details of which could take up to two years to be fully established, once Article 50 is triggered, there is a clear possibility of a significant deterioration
in the terms of trade due to the possible introduction of tariffs on UK imports and exports. This could negatively affect the European art trade in future. Whatever is negotiated, it is most likely that the costs of trade between the UK and EU will increase, whether through market access measures (such as tariffs) or increased administrative burdens (such as custom formalities and VAT).
The UK market, on the other hand, may be free to improve its terms of trade with non-EU countries, which have been the dominant partners with the UK in terms of sales and cross-border trade in the last ten years. Within the EU, free trade in all goods within the internal market was a guiding principle guaranteed under Articles 9 and 30-34 EC of the Treaty stablishing the European Community (more commonly referred to as the Treaty of Rome). It was recognized however that there was a need to reconcile the free movement of goods in general with the legitimate protection of the cultural and artistic heritage of Member States. Article 36 EC therefore provides a derogation from 30-34 EC, permitting Member States to adopt or maintain prohibitions, restrictions or measures of equivalent effect on the import, export, or transit within the EU of national treasures having artistic,
historic or archaeological value. This has allowed each Member State to define its own national treasures (using its own wording, categories and values), and then to adopt any measures to restrict the free flow of art objects to whatever extent they deem necessary in order to preserve the national patrimony. While most countries allow the free flow of Contemporary art, there are a broad range of definitions and inclusions in older sectors of the market, which has lead to some distortions in intra-EU trade. States have had divergent interpretations of the term ‘national treasure’, which had tended to be either an ‘extensive’ interpretation by countries such as Italy and Greece that aim to enforce tight restrictions through broad definitions, or a more ‘restrictive’ interpretation by major importing countries like the UK, which are the key centers for international trade. In 2016,
Germany used this derogation to enforce stricter restrictions on both internal and external trade in works of art. Under their new Cultural Property Protection Law, or culturgutschutzgesetz, works of art exported from Germany to destinations within the EU will require an export license if they are valued above €300,000 and are over 75 years old,
while those for extra-EU export require a license if above €150,000 and over 50 years old, affecting a very broad section of the Contemporary sector and instigating concerns within the trade that this could have a negative effect on vitality of the country’s art market.
These types of trade restrictions along with various other European directives such as Artists’ Resale Royalties and import VAT on art have all added to the administrative costs of doing business in the EU and may now be reviewed by the UK. If these were removed, the UK could potentially become increasingly competitive, with fewer regulations and lower charges on non-EU sales. As a result, its competitive position vis-à-vis major markets such as the US and China could improve while its trading position with the EU may deteriorate.
The breakdown between public auction sales and private sales varies widely between countries and between the different sectors of the market. In 2016, aggregate sales by dealers accounted for a larger share of the market at 57% by value, with auction sales comprising 43%. It is interesting to note that this is one of the highest shares the dealer sector has reached in recent years, with the market often fluctuating around 50:50 with more marginal changes year-to-year. There was a similarly large increase in the share of the
dealer sector in 2009 during the market’s decline (when it reached close to 56%). Generally, in a buoyant market, auction sales tend to perform the most strongly, with sellers enticed to the public auction market as there is increased potential for upside or better than anticipated results with ample demand. However in a less certain or declining market, the risk at auction is greater, and potential for unexpected upside significantly reduced, which may tempt more vendors to pursue private sales. It seems likely that this may have
been the case in 2016, particularly at the high end of the market.