The Federal Government has backed changes to Section 46 of the Competition and Consumer Act (CCA) which includes the introduction of an ‘effects test’, but the endorsement has brought mixed reactions from the wider business community.

An effects test was proposed by the Harper Review last year in an effort to protect small businesses from large corporations who abuse their market power. The Harper Review originally made 56 recommendations, with the government supporting 44 in total – 39 “in full or in principle” and a further five “in part”. In its response to the Harper Review, the government also noted it “remained open” to 12 additional recommendations, which included changes to Section 46.

The policy changes have been labelled a big win for the small business community. Peter Strong, CEO of the Council of Small Business Australia (COSBOA) told C&I Week that while changes to competition policy won’t be instant it will curtail competition and big business behaviour over the longer term.

“We don’t think it goes far enough. We think there needs to be a lot more done about pricing and a few other things but we have now started down the path of getting true competition out there, and we know it’s a good thing when Wesfarmers and Woolworths complain about it,” Mr Strong said.

Patricia Forsythe, spokesperson for the Australian Chamber, said the decision to accept the recommendations of the independent Harper competition policy review is supported by consumer groups, the Australian Competition and Consumer Commission and a wide coalition of business interests.

“Competition policy is always controversial, but fixing Section 46 will promote merit-based competition. Competition policy should not be viewed as a battle between big business and small business.

“Removing the ‘take advantage’ element and focusing Section 46 on whether the conduct of a business has the effect of lessening competition will bring Australian law into line with international best practice.

“The United States, Europe and most other jurisdictions use similar general tests, with no evidence of a chilling effect on competition or significantly higher legal costs.

“Australia already has an effects test for the telecommunications industry, and Vodafone, a major player in the industry, has publicly stated that the effects test works well and should be expanded to other industries.”

Effects test not a silver bullet: AACS
Jeff Rogut, CEO of the Australasian Association of Convenience Stores (AACS), told C&I Week businesses should be cautious of the implications of an effects test, adding the reforms seemed “hypocritical” following the government’s proposal earlier this week of increasing tax on tobacco.

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This story first appeared in Convenience and Impulse Retailing.