European Union trade officials have launched an investigation into whether imports of U.S. biodiesel break international trade rules because of subsidies, the EU's executive Commission said on Friday.

A European Commission statement said examination of complaints lodged by European industry found an investigation was warranted.

"Sufficient evidence was provided of subsidies to the U.S. biodiesel sector, as well as dumping of biodiesel in the European market," the statement said.

"The complainant has argued that this has had an adverse effect on the European biodiesel industry. A detailed investigation by the Commission will now determine whether measures are justified."

It said the Commission would make its provisional findings by March 13, 2009 and present them to EU member states.

"We have always said that the EU will not tolerate unfair trade practices and will pursue vigorously any well-founded complaint," said a spokesman for EU Trade Commissioner Peter Mandelson.

The statement said that if measures were considered justified in the case of subsidies, these would be in the form of "countervailing duties" - or specific duties on the product in question - and "anti-dumping duties" in the case of dumping.

The statement said the complaints concerning imports of biodiesel from the United States were lodged with the Commission on April 29.

It said the evidence provided of subsidies included federal excise and income tax credits as well as a federal programme of grants to finance increased production capacity. It said various subsidy programmes would also exist at state level.

"The effect of the subsidisation and dumping is, according to the complainant, a deterioration in the prices charged and market share held by the Community industry which has led to substantial adverse effects on the overall performance and the financial situation of the industry."

In April, EU biodiesel producers asked the Commission to impose duties on biodiesel imports from the United States on the grounds they broke international trade rules.

European producers say their U.S. rivals benefit from generous subsidies when they blend biodiesel with small amounts of mineral diesel in the United States, creating unfair competition that has put much of EU industry out of business.

The European Biodiesel Board, which represents EU producers, complains that U.S. subsidies for "B99" biodiesel - blended with mineral diesel - breach World Trade Organisation rules and also threatens the growing international trade in biodiesel.

But U.S. producers deny that their exports are the main reason behind the problems of European producers which has also been caused by new biodiesel taxes in Germany.