Business,  Law

The UK Has Left the EU – What Does the New Trade Deal Mean for the British Art Market?

As of 1 January 2021, European Union law ceased to apply to the United Kingdom. Since the pair’s acrimonious split in 2016 – with the UK formally packing its bags on 31 January 2020 – the bitter exes have been haggling as to a mutually acceptable trade agreement by the end of the transition period on 31 December 2020. But in an eleventh-hour Christmas miracle, the two finally sealed a post-Brexit deal – albeit without a kiss – on Christmas Eve.

And, while this may provide the certainty that businesses have been demanding, exactly how UK-EU business relations will fare remains to be seen over the next 11 month grace period, or ‘implementation phase’. At this crucial moment, the late announcement has left UK commerce on tenterhooks – including the British art market, which engages with its EU counterparts on a daily basis.

The European Union (Future Relationship) Act 2020 – passed in the House of Commons on 30 December 2020 – gives effect in UK law to the UK-EU trade agreement. Despite a summary which states that the UK has secured a “tariff-free and quota-free trade deal”, the UK’s exit from the EU single market will inhibit the free circulation of goods and impose VAT on imports from the EU. This will be a blow to UK art businesses, as the UK was once seen as the gateway to the EU art market for its low rate of import VAT – at 5.5% – for collectible items.

At a glance, a free trade deal seems like positive news for the art market, but it does not eliminate checks between the UK and EU. If anything, additional customs paper-work, red tape and administrative processes will be cause for significant growing pains post-Brexit.

When the UK leaves the EU, it will also leave the EU Customs Union. UK businesses will now need to make customs declarations when they import and export goods to and from the EU. In addition to this paperwork, British businesses will also require an Economic Operator Registration and Identification number (EORI) beginning with GB or EU, depending on the movement of goods, which can be applied for from the relevant EU customs authority.

British Art Historian Bendor Grosvenor describes the trade deal as “dismal”, claiming it is now more difficult for UK art businesses to trade in art since the 1970s. Import duties will now be due on artworks arriving from the EU to the UK, similar to artworks arriving from Switzerland and the US, adding time and money to the moving process. That said, in a positive move for galleries dealing with high-value artworks, the threshold for the requirement of export licenses for valuable paintings is now £180,000, where it was previously £132,000.

Writing in The Art Newspaper, Alexander Herman, Assistant Director of the Institute of Art and Law, also explains that the trade deal allows for temporary admission where taxes and import duties will not be applied to works brought into the UK from the EU for temporary display in exhibitions – no doubt a welcome relief for the museum sector.

The trade deal has implications for art businesses based in the EU, too. The UK enjoys a low VAT rate, with many EU countries previously first importing works via the UK before forwarding to their own states to avoid paying higher VAT rates. However, this will no longer be possible and individual countries will now have to pay VAT at their own national rate, which can be up to 10%. It should be no surprise then, that many have speculated that France could become the new favourite for conducting art business in Europe, as – at 5.5% – it has one of the lowest VAT rates on the continent.

It’s also important to note that, despite the last-minute trade deal announcement, the Government is required to give notice to changes on import and export procedures on their website. They must then give 21 days’ grace before enforcing import procedures and 45 days’ grace when it comes to export, meaning that new procedures would not fully come into effect until February 2021.

Another issue is the movement of cultural goods, and the status of Article 3(1) of the EU’s 2019 Cultural Goods Import Regulation. Although the Regulation came into force in the UK on 28 December 2020, it has since been abandoned by the UK government in light of their skepticism on the EU’s approach to the issue. The section of the regulation which passed into UK law allowed for the seizure and return of goods illegally removed from their source countries – regardless of subsequent good faith purchases – and extended to items on loan between the UK and EU.

In effect, works of art dating hundreds of years back would suddenly be in breach of local laws of the time, “regardless of subsequent good faith purchase, treaty and convention considerations or the normal statutes of limitation”, as The Art Newspaper explains. Naturally, the Regulation was staunchly opposed by the art market despite its 2025 enforcement date. But the worst has been avoided, as former MEP Daniel Dalton comments, since the strict measures may put the EU market at a disadvantage compared with the UK, who no longer require proof that artworks were legally exported from their country of origin.

Despite the anticipated upheaval of the UK’s departure from the EU, there have been few instances of UK galleries and auction houses relocating outside of Britain. But, the logistics of shipping artwork between the UK and the EU have just become more complicated. While the specifics are still unclear, experts have advised British businesses to enlist the help of IT infrastructure as well as couriers, customs brokers and freight forwarders to ease the shift towards a new way of working.

However, the movement of goods is just the tip of the iceberg when it comes to post-Brexit concerns. As art lawyer Sarah Barker of Lee & Thompson LLP explains to Apollo, employment and visa-related matters, data protection regulations, e-commerce, business travel in the European Economic Area, and changes to the UK sanctions regime are just some of the things that will also need to be reconsidered. The travel-addicted art world may also experience difficulty when touring Europe, as long-term travel to the EU now requires a visa, with requirements varying depending on the country and the length and purpose of travel. The same questions also exist concerning working on the continent full-time.

And, as if the pressure of a pandemic – which has significantly decreased consumer footfall – and the impending wider tumult of Brexit weren’t enough, the UK government has also decided to scrap tax-free shopping for international tourists from 1 January 2021. The clampdown on duty-free shopping has seen art dealers – who are most likely to be affected – band together with the larger luxury goods industry to lobby against the legislation. So far, their plea has fallen on deaf ears.

While procedures may be cumbersome initially, Brexit could be the UK art market’s golden opportunity to carve its own legacy on the global stage. Meanwhile, the pound was up 0.5% to USD $1.3557 and also advanced against the euro, gaining 0.4 per cent to EUR €1.1121, according to The Financial Times.