The sentence is ambiguous—although the use of would at least suggests that it's more likely interpreted to mean it's the amendment that will increase foreign competition.
Rephrasing the sentence makes one or the other meaning more explicit.
The local business community is working to amend a law that increases foreign competition.
The local business community is working to amend a law that has increased foreign competition.
Here, it's clear that an existing law is responsible for an increase in foreign competition, and the amendment seeks to change that in some way. The first sentence would be used if the law to be amended was only recently introduced, while the second would be used if it has been in effect for some time.
The local business community is working to amend a law in order to increase foreign competition.
In this version, it's clear that the amendment will serve to increase foreign competition from whatever state it's currently in.