(FORTUNE Magazine) – Poor Damien Hirst. In mid-November, his masterpiece, Alone Together, which consists of 100 fish encased in glass blocks filled with formaldehyde, fetched $277,500 at a Christie's auction in New York City. If only the auction had taken place in Paris--then Hirst would have been entitled to 3% of the price, or more than $8,000, thanks to a curious little taxlet dating to 1924 known as the droit de suite. It decrees that when a work of art is resold, modern artists (living ones or those dead less than 70 years) or their heirs must get a share of the proceeds. Paloma Picasso must love it.

The idea behind the droit de suite was rather noble and can be gauged by the tenor of a famous cartoon, showing a widow and child, in rags, pointing to the high price in a shop window of a painting done by their dead loved one. But the droit de suite is also a large part of the reason Hirst's dead fish were not auctioned in France: Sellers don't want to share the loot. No wonder that Paris, which dominated the world art market as late as the 1950s, is now a distant third. New York (47%) and London (29%) have taken over. Neither imposes the charge.

Now, in the name of tax harmonization, the European Commission has decided that the droit de suite, which is imposed in 11 EU countries, must be made consistent. "This proposal will...promote fine art within the European Union while removing existing distortions," said Mario Monti, then competition commissioner, when he introduced the measure in 1996.

Nonsense. The flaw in this reasoning is that it assumes art is an internal EU market; it is a global one. Owners can sell a Matisse as easily in New York or Geneva as in London or Paris. And that is what they will do if costs go up.

Consider what happened when the EC forced Britain to charge a 2.5% value-added tax on art imports in 1994 (raised to 5% this year). In a result that can only have been surprising to multilingual, sophisticated, gorgeously educated Eurocrats, imports to London dropped by almost 40%, while imports to the U.S., where no such tax is imposed, rose 48%. (London has since recovered some ground.) From 1994 to 1997, America's art market grew twice as fast as Europe's.

A plaintive chart put out in 1998 by the French association of auctioneers also proves the point. It showed that if a European were to buy a work of modern art at auction in Paris, the total taxes could hit 31.5%; in London, 20%; and in New York, zero. That is what's known as competitive advantage.

Britain, which has a larger art market (about $3.5 billion a year) than the rest of Europe combined, is therefore digging in its heels on the droit de suite. "Harmonization is not a bad idea," says Anthony Browne, chairman of the British Art Market Federation. "But they are piling in as if the rest of the world doesn't exist."

To be fair, the Eurocrats are listening. When the Internal Market Council next takes up the issue, in early December, it will consider a much watered-down version that caps the charge at about $11,000 and raises the minimum price on which it is imposed. But Browne insists that even a low-rent droit de suite is a bad idea because it's such a nuisance to administer. Why bother when you can just ship the fish to New York?

There is also a question of principle. Advocates argue that tax harmonization can reduce transaction costs, promote competition, and ease the flow of goods and services. But the droit de suite will raise, not lower, transaction costs and diminish the flow of commerce. If harmonization is necessary, the Brits argue, let's just kill the thing.

New York dealers, meanwhile, are licking their lips at the prospect of Europe's shooting itself in the head. "It would be wonderful," says Richard Bernstein, attorney for Wildenstein & Co., a gallery. "Any wrinkle that involves additional burden on purchasers will inevitably have an economic impact." Howard Rutkowski, director of impressionist and modern art at Philips, an auction house, is careful not to dis Europe, where his firm has offices. But the droit de suite has a "real chance to drive more business across the Atlantic," he notes. "It's obvious that people are not going to want to pay that if they don't have to." Not obvious to some.

--Cait Murphy