For years, politicians and publishers have been worried about the dominance of tech giants such as social media firms and search engine companies over traditional news media.

The Australian Competition and Consumer Commission, Australia’s competition regulator, opened an inquiry into social media and search engine firms.

The investigation found a disparity of power between such firms and the media, recommending a new code of conduct. For example, out of every $100 spent on digital advertising, $53 goes to Google, and $28 to Facebook, with $19 finding its way to others.

The Australian Government revealed its draft law last year, and this was passed by House of Representatives yesterday. Given the bipartisan support it enjoys, it is set to pass the Senate and become law.

What would the law do?

The proposed new law would mandate tech firms such as Facebook and Google to pay Australian publishers such as newspapers directly for content that is posted on their sites. It would also require them to give advance notice of changes to their algorithms.

In this instance, Facebook would have to negotiate prices with publishers within three months. Failing this, a government-appointed arbitration panel would mediate between platforms and publishers.

Penalties could reach A$10m (£5m) or 10 per cent of the firm’s local turnover.

How has Facebook responded to Australia?

In a blog post, Facebook condemned the move by the Australian Parliament. William Easton, Managing Director for Facebook Australia and New Zealand said:

“The proposed law fundamentally misunderstands the relationship between our platform and publishers who use it to share news content.

“It has left us facing a stark choice: attempt to comply with a law that ignores the realities of this relationship or stop allowing news content on our services in Australia. With a heavy heart, we are choosing the latter.”

Today, Facebook blocked Australian publishers from posting their content on the site as well as users around the world from accessing content from those publishers.

Why does this matter?

Australia, a nation of 26 million people, is a relatively small market for tech giants. Facebook, the world’s biggest social media network, has over 2.7 billion monthly active users.

But it is being seen as a test case for potential action elsewhere. Other countries, as well as the European Union, have been considering taking similar action. Facebook’s response could be seen as a pre-emptive shot against proposed changes.

What about Google?

In January, Google made headlines around the world by threatening to withdraw its search engine from Australia if the proposed bill became law.

However, it has since revealed an agreement to pay Rupert Murdoch’s News Corp for content as part of a three-year package.