Mixed reactions to government’s backing of ‘effects test’

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 The Harper Review originally made 56 recommendations, with the government supporting 44 in total – 39 “in full or in principle” and a further five “in part”.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.

“I think it’s a bit hypocritical of the government to say it is supporting small business with an effects test when earlier this week it was talking about introducing cigarettes at $40 a packet, which would dramatically hurt thousands of small businesses that sell a legal product,” Mr Rogut said.

“The components of the effects test have mainly been targeted towards grocery. We’ve seen other retailers like Aldi and Costco come into the grocery space and Metcash are becoming more aggressive so I don’t think the current laws aren’t really stifling competition.

“Businesses need to be cautious about what such a test will do, what will be the cost to small business if they need to engage lawyers to fight for them to prove the effect of someone’s conduct.

“Those that think this is the silver bullet that’s going to solve all competition issues are somewhat clouded in their thinking. The other thing an effects test will possibly do is bring an element of risk to businesses when they make decisions about expansion, potential promotions, new products, new stores. They will really have to think of the effects of what it is they’re doing.”

Newsagent’ Federations welcomes changes
The Australian Newsagents’ Federation (ANF) CEO Alf Maccioni, said the decision by the government was “an important step in the right direction” for newsagents and small business owners.

“Newsagents’ simply want the freedom to compete robustly to the extent that we as small businesses can in our relevant markets,” Mr Maccioni said.

“We would have liked even stronger measures, however, this is an important step in the right direction and we hope that once the amendments are completed, the ACCC will move quickly to test the new laws so we can assess over the next few years the effectiveness of the reforms.”

“Our members benefit from the recently announced extension of unfair contract terms that we pushed hard for, unconscionable conduct provisions and the mandatory code provisions of the CCA, which are all of assistance to small businesses like ours.

“These provisions nonetheless need to be supported as part of a package, and a necessary part, by a provision that doesn’t prevent or deter competitive conduct by smaller players. Our members see a crucial role for the reformed Section 46 of the CCA and we want to acknowledge the work of many small business associations and the governments support in making this happen,” Mr Maccioni said.

Business Council “disappointed”
The Business Council of Australia (BCA) said it was disappointed by the government’s decision to change Section 46 of the CCA as proposed by the Harper review.

“If Australia wants to have an innovation-driven economy, this is poor policy,” BCA president Catherine Livingstone said.

“We participated in good faith throughout the consultation process, and will continue to work with the government to minimise the risks and unintended consequences from changes to the law.”

The government will consult on Exposure Draft legislation before introducing it to Parliament later in 2016.

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