BRUSSELS - The European Union's trade authority plans to start an investigation into whether US bioethanol exporters are receiving illegal state subsidies and selling their fuel to Europe at illegally low prices, diplomats said on Tuesday.

The European Commission investigation could result in import tariffs as early as next year on hundreds of millions of litres of the fuel if EU officials were to unearth evidence of unfair trade practices in the United States.

"The Commission wants an investigation and EU capitals will not stand in the way, so it will begin this month," said one diplomat.

Specifically, trade officials will investigate EU industry allegations that tax credits in the United States allow its exporters to cut their EU selling price by about 40 percent, the diplomats said.

They will also investigate EU industry complaints that the price of US ethanol is 15 to 20 percent lower in Europe than at home, the diplomats added -- a practice known as dumping that is illegal under international trade rules.