Shops opened for all but three days a year, deregulated pharmacies and a shake-up of the competition watchdog – they’re just a few of more than 50 recommendations from a landmark review into competition laws.

The review, led by the economist Ian Harper, delivered its first round of recommendations yesterday.

Largely welcomed by economists and industry, the draft report is the first of its kind in more than 20 years.

It has taken up a call from the competition watchdog to tighten laws to make it harder for big operators to squeeze smaller rivals out of business.

• 85 cent bread ‘cripples’ small retailers: Xenophon
• Generic items vs the big brands

The Australian Competition and Consumer Commission (ACCC) and small business had advocated an effects test, or misuse of power laws, which would restrict the ability of major companies to force out smaller competitors.

The review is backing a diluted version of that test.

“So it’s no longer just black and white, simple purpose and effects test – that’s not the point,” explained Professor Harper.

Under the current wording of the act, to prove a company is abusing its market power, the ACCC has to demonstrate the company is intending to lower competition in its market.

For example, by deliberately undercutting its competitors prices to push them out of the market or buying up land in a shopping district to stop a new competitors from moving in.

If the law changes, the regulator would only have to prove the company’s business decision has had the “effect” of lessening competition.

However, the competitions review’s panel has proposed an automatic defence in some circumstances.

“The defence is, if that substantial lessening of market power nevertheless is a rational action – result of rational action that a firm that didn’t have market power would have done, and is in the long-term interest of consumers, pass,” he added.

A fierce critic of the effects test, Wesfarmers (which owns Coles) boss Richard Goyder, is disappointed, saying in a statement it could lead to higher prices, more uncertainty in investment decision-making and increase litigation.

The Australian National Retailers Association, which represents big companies, says the change would lessen competition and is designed to protect the prices and profit margins of smaller retailers.

“There are separate provisions in the law that cover those issues. If there’s abuse of market power, unconscionable conduct, there are existing laws that cover that,” argued ANRA’s acting chief executive Rob Hadler.

“This is in addition, this is a new thing that’s never been in the Australian competition law. Introducing an effects test in section 46 would be pandering to the small business and farmer lobby groups who are screaming out from protection from competition.”

Former ACCC chairman Graeme Samuel agrees that such a provision would create uncertainty for big businesses in taking many commonplace decisions.

“I think the whole thing is fraught with danger and fraught with the prospect of providing a chilling impact on the business behaviour in this country,” he said.

Trading hours, industry deregulation

While the market power and effects test proposals may be stirring controversy at the big end of town, a range of other proposals are concerning other retail and service sector operators.

While most states now have open trading, Western Australia, South Australia and Queensland still have restrictions.

“If there is to be an exception, we say, let it just be Good Friday, Anzac Day and Christmas Day. Other than that, let those decisions be made by the individual sellers in order to meet the preferences of their buyers,” said Professor Harper in arguing for trading hour restrictions to be wound back.

John Cummings has owned grocery stores in Perth for the past 30 years. He survived the introduction of Sunday trading two years ago, but thinks unrestricted trading hours could be the final blow.

“We’ll just see a further shift of sales from small business to big business … We’ve got trading hours that satisfy over 95 per cent of consumers right now, and retailers,” he responded.

Other key proposals include the deregulation of the pharmacy and taxi sectors and abolishing limits on parallel imports.

The review is also calling for the creation of a new body, the Australia Council for Competition Policy, to work alongside the existing Australian Competition and Consumer Commission.

There is also a proposal to split pricing and access arrangements from the competition watchdog.

Former ACCC boss Graeme Samuel says that makes sense.

“There are some very real questions that some of us are asking at the moment as to the whole process of price regulation and whether that doesn’t need a fundamental rethink to provide more incentives for efficiency so as to lower costs and ultimately lower prices in the interests of consumers,” he argued.

However, while generally welcoming the report, the current ACCC chairman Rod Sims has hit back at that particular proposal.

He says the organisation must retain responsibility for pricing energy, telecommunications and bulk water, and splitting it out will cost the Federal Government more.

“I think more we’d like to understand what the problem is that they’re trying to solve. It’s just not clear, at least to us, why that change is needed,” he responded.

The competition controversy has a long way to run, with the final report to be handed to the Federal Government next March.