* Commission says initial evidence suggests damaging imports
* Argentina already challenging Spain at WTO over import barriers
BRUSSELS Nov 10 (Reuters) - The European Union has begun investigating accusations that Argentina and Indonesia are dumping biodiesel in Europe, undercutting local companies which face falling output and bankruptcies.
The European Commission said on Saturday there was enough initial evidence to show import prices were damaging the industry's viability as Indonesia and Argentina, the world's no. 1 biodiesel exporter, increase their imports and market share.
"It is alleged that the producers ... have benefited from subsidies granted by the governments of Argentina and Indonesia," the Commission said in its Official Journal.
The investigation is the latest EU measure to protect its renewables industry, putting Europe at odds with major trading partners at a time when trade is one of the few sources of economic growth for the region struggling with a debt crisis.
Argentina is already challenging Spanish barriers to its biodiesel imports at the World Trade Organisation, after Madrid suspected dumping - deliberately selling products for less abroad than at home or at less than cost.
The European Biodiesel Board, which filed the complaint with the Commission, says Europe has seen a surge in Argentine and Indonesian imports, leading to several bankruptcies, forcing European producers to sell below cost and to cut production.
Imports from the two countries progressively rose from very low levels in 2008 to a total of around 2.5 million tonnes in 2011, or more than 90 percent of imports into the EU, according to EU statistics office Eurostat and the biodiesel board.
The board, citing market sources, said Argentine and Indonesian imports have been sold for between $60 and $110 dollars less than EU biodiesel, while soybean oil had sold for around $100 a tonne more than imported soybean-based biodiesel.
In 2008, the Commission initiated an anti-dumping and anti-subsidy investigation against unfair U.S. imports of biodiesel, which led to the imposition of substantial anti-dumping duties - as well as making way for Argentine and Indonesian imports.
Under EU law, the Commission must finish its investigation within 13 months and can impose provisional anti-dumping duties within nine months. (Reporting by Robin Emmott and Francesco Guarascio; Editing by Alistair Lyon)