FEEDBACK from auctioneers and dealers shows that the Artist's Resale Right (ARR) has caused serious problems since its introduction in the UK two years ago.
In a pioneering independent study sponsored by ATG and published this week, the industry warns that the British art market risks losing business, and that emerging artists, who are already losing out under the measure, will suffer further unless significant changes are made.
Top of the list for review is the proposal to extend the right to the estates of artists who have been dead for less than 70 years. The study shows that if this happens in 2012, as is planned, payments under the scheme will increase fivefold, along with bureaucracy.
Many dealers have said that, under these circumstances, they will move any transactions for qualifying artists to countries - predominantly the USA and Switzerland - where the ARR does not apply. Such a move would seriously damage British art market interests.
Now ATG are backing a British Art Market Federation (BAMF) campaign to restrict the ARR to living artists until the European Union fulfils its commitment to establish a global resale right, which would put all markets on a level playing field.
The study, researched and drawn up by art market specialist Toby Froschauer and entitled The impact of Artist Resale Rights on the art market in the United Kingdom, also highlights shortcomings in the administration of the ARR.
Foremost of these is that neither the art market nor apparently the collecting societies responsible for distributing the royalty have the means of determining with certainty which artists are entitled to receive payments.
The databases of qualifying artists are neither comprehensive nor entirely accurate. Despite this, auction houses and dealers responsible for paying the levy are not indemnified against errors that are not their fault.
In the case of one auction house, such errors cost them over £28,000.
BAMF and ATG believe that this fundamental difficulty could be remedied by introducing a requirement that artists should register their names on a central database if they wished to exercise their right to receive ARR payments.
Alternatively, the collecting societies should indemnify the art market if losses are suffered as a result of the errors the collecting societies make in failing to identify qualifying artists.
This would have the additional benefit of making the collecting agencies' task easier.
Toby Froschauer's study demonstrates that the claims made by the supporters of ARR before its introduction exaggerated the scale of the benefits that it would provide for artists and that the costs of collection were substantially underestimated.
Although there were predictions that it would cost dealers and auctioneers as little as 40p per transaction to process payments, by identifying the processes that are needed in order to collect the royalty, the study reveals that the real cost per transaction is between £23.30 and £53.60.
Costs were such that the amount paid to many artists was outweighed by the expense of collection and distribution. 112 artists qualified for less than £40 and 316 artists (29 per cent of all those who benefited) received less than £100.
The claims made before ARR's introduction also exaggerated the number of artists who would benefit. Before its introduction, claims had been made that tens of thousands of artists would receive payments (The European Commission estimated that as many as 250,000 artists across the EU would benefit).
But in the first 18 months in the UK - the second largest art market in the world - only 1104 artists benefited, of which only 568 were British.
Perhaps most starkly, the study showed that poorer artists - the very people ARR was introduced to help - hardly benefit at all. The tally of payments submitted by dealers and auction houses for the study, which closely matches those announced by the collecting agencies for the period, shows that the top 20 artists received 40 per cent of the money collected, and the top 10 per cent of artists shared out 80 per cent.
Most worryingly for younger artists, many of those in the trade who have championed them in the past are saying that they can longer afford to do so.
Gallery owners take on the commercial risk and considerable expense associated with promoting an unknown artist. The study reveals that many galleries are now less willing to do this as a result of the complications of processing ARR payments and the impact of royalty payments on low margin sales.
Instead they are opting for selling the work of the less risky, well-established artists.
Mr Froschauer concludes: "The relationship between a dealer and his artist, so important to the early development of artists' careers, appears to be being undermined by a system that was intended to benefit artists."
By Ivan Macquisten
SUMMARY OF FINDINGS
THE study examines the first 18 months (from February 2006 to August 2007) of the operation of the Artist's Resale Right in the UK. Data has been assembled from galleries, dealers and auction houses about the costs and specific problems associated with administering the new levy; the amount of royalties paid and the number of artists who have benefited and to what extent.
Never before has the Artist's Resale Right been introduced into a market as large as Britain's, which accounts on its own for over half of the EU's entire art market.
This study reveals that there are serious problems which will need to be addressed if the new royalty is to function efficiently. It further demonstrates that the claims made by the supporters of ARR before its introduction exaggerated the scale of the benefits that it would provide for artists and that the costs of collection were substantially underestimated.
The study reveals a number of practical difficulties:
• Neither the art market nor apparently the collecting societies responsible for distributing the royalty have the means of determining with certainty which artists are entitled to receive payments.
• This uncertainty creates needless additional costs, by obliging the art market to carry out its own research in order to try to ensure that the correct royalty is deducted at the time of sale.
• This fundamental difficulty could be remedied by introducing a requirement that artists should register their names on a central database if they wished to exercise their right to receive ARR payments. Alternatively, the collecting societies should indemnify the art market if losses are suffered as a result of the errors the collecting societies make in failing to identify qualifying artists.
The costs to the art market resulting from the introduction of ARR were substantially underestimated:
• Although there were predictions that it would cost dealers and auctioneers as little as 40p per transaction to process payments, by identifying the processes that are needed in order to collect the royalty, the study reveals that the real cost per transaction is between £23.30 and £53.60.
• In addition, there have been other, unanticipated costs resulting from the lack of reliable information about qualifying artists.
• Costs were such that the amount paid to many artists was outweighed by the expense of collection and distribution. 112 artists qualified for less than £40 and 316 artists (29% of all those who benefited) received less than £100.
The claims made before ARR's introduction exaggerated the number of artists who would benefit:
• Before its introduction, claims had been made that tens of thousands of artists would receive payments (The European Commission estimated that as many as 250,000 artists across the EU would benefit).
• In the first 18 months, in the second largest art market in the world, only 1,104 artists benefited, of which only 568 were British.
The distribution of royalty payments confirms that ARR mainly benefits a small number of well-established artists and that it is not the redistributive force in favour of poorer artists that its champions claim:
• The top 20 artists received 40% of the total collected, and the top 10% of artists shared out 80%
Far from providing benefits to younger, emerging artists there are signs from the study that ARR is working against their interests:
• Many younger artists depend on galleries to nurture their reputations and to promote their work by supporting it in the resale market. To do this gallery owners take on the commercial risk and considerable expense associated with promoting an unknown artist. The study reveals that many galleries are now less willing to do this as a result of the complications of processing ARR payments and the impact of royalty payments on low margin sales. Instead they are opting for selling the work of the less risky, well-established artists.
The proposed extension of ARR to the work of deceased artists, due to come about in 2012, will greatly increase the number of sales liable to the levy and, with this, the associated administrative complications and costs:
• It would seem essential that the considerable problems associated with its introduction should be addressed and solved before any further changes are contemplated. It is also doubtful that the decision to charge the royalty on low value sales has produced the predicted benefits.
• Since the introduction of ARR in the UK there has been an unprecedented boom in the global market for contemporary art. This has enabled the UK to maintain its competitive position until now, in spite of the levy, although the US contemporary art market has fared even better. The extension of the royalty to the work of deceased artists will greatly increase the risk that the UK will be bypassed in the valuable market for 20th century art. It should be noted that the UK's main rivals in the global art market have not so far introduced ARR, so the risk that sales will be diverted away from the UK will increase, particularly if the unusually strong market were to weaken.
