Document originated:	12 March 1998
Original language:	French
Forwarded to the Council:	13 March 1998
Circulated by the Council in the original language:	19 March 1998
Circulated by the Council in English:	23 March 1998
Deposited in Parliament:	31 March 1998
Department:	Trade and Industry
Basis of consideration:	EM of 15 April
Previous consideration:	None; but see (17202) 7050/96: HC 51-xxiii (1995-96), paragraph 1 (26 June 1996)
Committee's assessment:	Legally and politically important
Committee's decision:	Not cleared. Information about a Commission fiche d'impact requested

The proposal

4.1  The proposed Directive would harmonise the régime for artists' resale rights, known as droit de suite. This right provides an artist, and his heirs for 70 years after his death, with a right to receive a royalty whenever one of his "original" works is resold in the Community. It applies to any sale, except the first sale by the artist, when the work is resold by public auction or through an agent.

4.2  The right does not exist in the UK, Ireland, Austria or the Netherlands. The Commission reports that the other eleven Member States recognise artists' resale rights in principle, though only eight apply it in practice. According to the UK Government, in those States that apply it, it is enforced to differing degrees.

4.3  The text can be summarised as follows:

Article 1 provides that the right cannot be given up even in advance, and exempts private transactions from application of the right.

Article 2 stipulates that "original" work means works of plastic or graphic art made by the artist himself, or copies considered to be "original".

Article 3 sets a threshold of 1000 ECU[11] above which the right must apply, though Member States are permitted to set a lower threshold (Article 4(2)).

Article 4 requires the vendor to pay a royalty of between 4% (least expensive works) and 2% (most expensive works) of the selling price.

Article 5 applies the royalty to the price net of tax.

Article 6 provides that royalties are payable to artists' heirs. It also enables Member States to provide for collective management of royalties.

Article 7 restricts the right to nationals of Member States and to foreign artists whose countries provide reciprocal treatment.

Article 8 provides for the right to last for the full copyright term, that is lifetime of the artist plus 70 years.

Article 9 provides a three year right to sales information.

Article 10 requires the Commission to report at regular intervals on the implementation of the Directive and, if necessary, to propose amendments.

Article 11 requires compliance with the Directive by 1 January 1999.

Articles 12 and 13 are standard provisions for bringing the Directive into force.

4.4  This proposal was considered by our predecessors in June 1996[12] and debated in European Standing Committee B on 29 January 1997[13] when the motion agreed to was that the Committee supported the Government "which is not persuaded that there is a case for the introduction of this proposal into the United Kingdom."

4.5  The Lords have debated the proposal on two occasions, 11 December 1996[14] and 10 December 1997[15].

4.6  The Commission has accepted, in whole or in part, 21 of the 28 amendments adopted by the European Parliament at First Reading. The substantive amendments concern:

i)  the exclusion of manuscripts from works subject to the right (Article 2);

ii)  an optional lower threshold at which the right begins to bite (Article 4);

iii)  an extension of the period in which sales information may be requested (Article 9).

Parliament's amendments (or parts thereof) not accepted by the Commission concern:

i)  exemption from the right of sales between dealers or between a dealer and a final purchaser where the transfer occurs within three years;

ii)  basing the royalty on profit (rather than selling price);

iii)  the restriction of entitled parties to legal heirs;

iv)  new price bands and a reduction in the royalty rates[16];

v)  the inclusion of glass among the works subject to the right;

vi)  the limitation to 12 copies of works considered to be "original";

vii)  earlier and more frequent review of operation of the Directive.

4.7  The Minister of State at the Department of Trade and Industry (Mr Ian McCartney) has attached a Regulatory Appraisal and a Compliance Cost Assessment to his EM in which he makes it clear that his Government, like its predecessor, remains opposed to the introduction of droit de suite into the UK. He says that, despite the proposal being an internal market measure, the Commission has produced no convincing evidence of distortion of the internal market in works of art. This raises the question of whether the proposal respects the principles of subsidiarity and proportionality and is justified. The Minister quotes figures from the British Art Market Federation to the effect that:

"...any internal market distortion could only apply to a limited number of works falling in the narrow price band between ECU 20,000 and 50,000[17]. If there has to be harmonisation, it would be far better to do so by abolition of the right. This would level the playing field with the EU's main competitors and enable Community art markets to compete more effectively for a greater slice of global business."

4.8  The Minister comments:

"The amended proposal makes no concession to UK concerns that the proposal would damage the competitiveness of London's international art market in relation to its main competitor — New York — and other third country markets.

"As the compliance cost assessment and regulatory appraisal show, the risk of introducing the right into the UK — loss of earnings among auctioneers and dealers of up to £68 million per year and up to 5,000 jobs — far outweighs any potential benefit to artists — at most, £9.6 million per year of which an estimated £2 million would go to British artists. Moreover, experience abroad shows that the majority of artists would get little, if anything. Royalties would go mainly to well known artists or, more likely, to their heirs.

"The proposal could set a precedent by giving artists a right to remuneration of a kind not available to other intellectual property rights holders, and could lead to demands for equitable treatment from creators of other 'goods' which are traded on the secondhand market..."

"Concerns about damaging international competitiveness would disappear, of course, were the resale right to become obligatory at international level (new recital 5a). However, the main international copyright convention — the Berne Convention — permits contracting parties (including the UK's main competitor, the United States) to decide for themselves whether to introduce the right. The proposal, however, would remove from the UK that freedom of choice.

"The European Parliament recognised the need to maintain international competitiveness. In doing so, it adopted amendments (rejected by the Commission) which introduce new price bands and lower royalty rates which would apply, not to the selling price, but to any profit made by the vendor. This is not only more equitable (vendors would not have to pay royalties when they make a loss on a sale), but would reduce, though not eliminate, the risk of sales switching to third countries.

"It is unfortunate that the Commission's original proposal, and now the amended one, is not accompanied by a fiche d'impact estimating the potential costs and benefits. This puts Member States in the position of not knowing what the effect of the proposal is likely to be on Community art markets and on EU artists. A review of the operation of the Directive by 1 January 2004 (Article 10) would come too late to undo the damage: markets once lost would be difficult, if not impossible, to win back".

4.9  The Minister says that the CCA and the Regulatory Appraisal were prepared on the original proposal but are still relevant as the exclusion of manuscripts from the amended proposal is not expected to make a significant difference to the earlier estimates.

4.10  On Consultation, the Minister says:

"When, in April 1996, the Commission published its proposal for a Directive, the document was circulated to over eighty representative organisations. This showed views to be sharply polarised. This remains the case. Most, but not all, artists favour the right; whereas the British art trade is firmly against it. The trade's representative body — the British Art Market Federation (BAMF) — has made representations to Ministers to express its concern about the impact the right would have on international competitiveness, and about the combined effect of the right and import VAT. Officials continue to liaise closely with the art trade and artists' representatives."

4.11  Finally, the Minister says that he does not regard the implementation date of 1 January 1999 as realistic. Negotiations in the Council Working Group still have some way to go and it is not known how the European Parliament will react to the omission of some of its substantive amendments.

4.12  The Government appears to be short of allies amongst the other Member States in its opposition to this proposal, despite the fact that there appears to be a real danger that the costs of the proposal in terms of damaging Community art markets would considerably outweigh the benefits to individual artists.

4.13  We are astonished that no Commission fiche d'impact has been produced. We ask the Minister what steps he has taken to insist that one be made and what further steps remain available to him.

4.14  Meanwhile, we do not clear the document.