WASHINGTON, Aug 4 (Reuters) - The U.S. Commerce

Department is expected to propose barring Chinese software in

autonomous and connected vehicles in the coming weeks, according

to sources briefed on the matter.

The Biden administration plans to issue a proposed rule that

would bar Chinese software in vehicles in the United States with

Level 3 automation and above, which would have the effect of

also banning testing on U.S. roads of autonomous vehicles

produced by Chinese companies.

The administration, in plans first reported by Reuters, will

also propose barring vehicles with Chinese-developed advanced

wireless communications abilities modules from U.S. roads, the

sources added.

Under the proposal, automakers and suppliers would need to

verify that none of their connected vehicle or advanced

autonomous vehicle software was developed in a "foreign entity

of concern" like China, the sources said.

The Commerce Department said last month it planned to issue

proposed rules on connected vehicles in August and expected to

impose limits on some software made in China and other countries

deemed adversaries.

Asked for a comment, a Commerce Department spokesperson said

on Sunday that the department "is concerned about the national

security risks associated with connected technologies in

connected vehicles."

The department's Bureau of Industry and Security will issue

a proposed rule that "will focus on specific systems of concern

within the vehicle. Industry will also have a chance to review

that proposed rule and submit comments."

A spokesperson for the Chinese Embassy in Washington said

electric vehicles are a globalized industry.

"Only division of labor and cooperation can bring mutual

benefits, and only fair competition can bring technological

progress," the spokesperson said adding: "China urges the U.S.

to earnestly abide by market principles and international trade

rules, and create a level playing field for companies from all

countries. China will firmly defend its lawful rights and

interests."

On Wednesday, the White House and State Department hosted a

meeting with allies and industry leaders to "jointly address the

national security risks associated with connected vehicles," the

department said. The sources said officials disclosed details of

the administration's planned rule at that meeting.

The meeting included officials from the United States,

Australia, Canada, the European Union, Germany, India, Japan,

South Korea, Spain, and the United Kingdom who "exchanged views

on the data and cybersecurity risks associated with connected

vehicles and certain components."

Also known as conditional driving automation, Level 3

involves technology that allows drivers to engage in activities

behind the wheel, such as watching movies or using smartphones,

but only under limited conditions.

In November, a group of U.S. lawmakers raised concerns about

Chinese companies collecting and handling sensitive data while

testing autonomous vehicles in the United States and asked

questions of 10 major companies including Baidu ( BIDU ), Nio

, WeRide, Didi, Xpeng ( XPEV ), Inceptio, Pony.ai,

AutoX, Deeproute.ai and Qcraft.

In letters, the group said that in the 12 months ended

November 2022 Chinese autonomous vehicle (AV) companies test

drove more than 450,000 miles (724,205 km) in California. In

July 2023, Transportation Secretary Pete Buttigieg said his

department had national security concerns about Chinese AV

companies in the United States.

The administration is worried about connected vehicles using

the driver monitoring system to listen in to or record

conversations of occupants or take control of the vehicle

itself.

"The national security risks are quite significant,"

Commerce Secretary Gina Raimondo said in May. "We decided to

take action because this is really serious stuff."

(Reporting by David Shepardson; Editing by Mark Porter, Diane

Craft and Muralikumar Anantharaman)