On 1st June 2018, the Customs Tariff Commission of the States Council in China issued a notice regarding reductions on MFN tariffs (i.e. Most-Favoured-Nation tariffs) on a selection of consumer goods. If customs authorities implement the new tariff policy efficiently, these changes are effective from 1st July 2018 and will affect about 1,500 different articles of everyday consumer goods including works of art, collectors’ pieces and antiques.
Most-Favoured Nation is a term in international relations which refers to a status granted to one nation by another that affects trade between them. This usually takes the form of special policies pertaining to permitted goods, customs duty rates etc. There is no compiled list of countries that enjoy this status in China. Instead, it refers to members of the World Trade Organisation who have bilateral agreements that include reciprocal clauses on customs duties for the goods originating in the respective countries.
So basically, “Hand-painted oil paintings, powder painting and other paintings other than Thangka” are down from 12% to 1%. Thangka paintings, if you are wondering, are the ridiculously beautiful paintings on cloth, native to Tibet, of Buddhist motifs and literature. Christie’s has a nifty guide on them here. Tariffs on Thangkas have been reduced from 12% to 6%.
The main objective of this reduction is to boost the local consumption of these goods. An important note here is that these MFN tariffs are not the same as import tariffs. The MFN tariffs are imposed after the value-added tax, once the good is actually introduced into the domestic market. Chinese buyers will still have to fork out the import value-added tax (Import VAT) of approximately 17% for good from the relevant nations.
The significance of this policy change lies in the size of the Chinese art market as a whole. In the Art Basel 2018 Art Market Report, China narrowly surpassed Britain to become the second-largest art market in the world, with China accounting for 21% of global art market share and the UK accounting for 20%. The United States, however, remains the Goliath of the market, accounting for a total of 42%. These statistics are made available in the Art Basel and UBS Global Art Market Report 2018.
According to an industry insider in the Shanghai art market, tariff reductions applicable to art have had a catalytic effect on market activity especially since 2012 - "Although the tariff reduction does not give the western works an explosive influx, the art activities in Shanghai have increased in recent years and the auction houses have also introduced more international works compare to the past.”
Adjustments of the import MFN might mistakenly lead some to believe that Chinese government authorities are aligning more to Western markets in their treatment of art. A deeper assessment of national policies reveal this to be unlikely.
The key difference is in the perception of works of art as primarily commodities or consumer goods in China, while in Western nations art is recognised for its other values. This difference can be seen in tax structures in the form of capital gains tax, inheritance tax, and relief on income tax for qualifying philanthropic activities relating to art. These structures are relatively well-established in the West, while China has much catching up to do if it is to transform the role of works of art as nothing more than everyday commodities.
Despite efforts to boost domestic consumption of these category of goods, the treatment of art market is very different in these top economies. The good news is that regardless of how dramatically a trade war plays out between the two superpowers, the effects on the art market are likely to be very undramatic indeed.