By Anthony Boadle
BRASILIA, March 18 (Reuters) - Brazil will drop a controversial provision that would have forced global Internet companies to store data on Brazilian users inside the country to shield them from U.S. spying, a government minister said on Tuesday.
The rule was added last year to proposed Internet governance legislation after revelations that the U.S. National Security Agency had spied on the digital communications of Brazilians, including those of their President Dilma Rousseff and the country's biggest company Petroleo Brasileiro SA.
Instead, the legislation will say that companies such as Google Inc and Facebook Inc are subject to Brazilian laws in cases involving information on Brazilians even if the data is stored abroad, congressional relations minister Ideli Salvatti told reporters.
She said the bill, which is opposed by Rousseff allies in the lower chamber of Congress, has enough support to be put to the vote on Wednesday.
Salvatti said the government will not negotiate a key provision in the bill on net neutrality, which has faced strong opposition from telecom companies in Brazil because it would bar them from introducing differential pricing according to Internet usage and speeds, such as higher rates for downloading videos.
Regulation of the business aspects of the new legislation can be done later by executive decree, she said.
The legislation dubbed Brazil's "Internet Constitution" protects freedom of expression, safeguards privacy and sets limits to the gathering and use of metadata on Internet users.
It ran into opposition from government allies in the PMDB party, Brazils largest, who opposed the net neutrality provision, while the requirement for in-country data storage had the Internet companies up in arms. They complained it would increase their costs and erect unnecessary barriers in one of the world's largest Internet markets.
However, following the spying revelations based on documents leaked by former NSA contractor Edward Snowden, requiring Internet companies to store data on Brazilians inside the country so that it could be subject to Brazilian laws became a priority for Rousseff.
Documents leaked by Snowden last year included revelations that the NSA secretly collected data stored on servers by Internet companies such as Google and Yahoo Inc.
Facebook has some 70 million users in Brazil, its third biggest market after the United States and India, and Google has a big slice of the local digital advertising market.
The reported espionage using powerful Internet surveillance programs upset relations between the United States and Brazil and led Rousseff to cancel a state visit to Washington in October and denounce massive electronic surveillance of the Internet in a speech to the U.N. General Assembly.
Rousseff and German Chancellor Angela Merkel, another leader allegedly spied on by the NSA, have led international efforts to limit mass electronic surveillance and Brazil will host a global conference on the future of Internet governance next month. (Additional reporting by Maria Carolina Marcello; Editing by Lisa Shumaker)