BRUSSELS, July 17 (Reuters) - The European Commission is expected to decide in September whether to propose extending dumping duties on imports of leather shoes from China and Vietnam, but most EU states want them scrapped, EU sources said.

Last October, the Commission -- which oversees trade policy for the 27-country European Union -- extended duties of up to 16.5 percent on Chinese leather shoes and 10 percent on those made in Vietnam, pending a review.

A majority of EU countries had opposed that move.

Industry and diplomatic sources with knowledge of the case told Reuters on Friday 17 July they expected Brussels to complete its review and submit its proposal for approval by member states by the end of September.

"The Commission's proposal is expected to be submitted to member states in September. But as it stands the majority, or at least 15 member states, favour termination," one source said.

Britain, Austria, Belgium, the Czech Republic, Cyprus, Denmark, Estonia, Finland, Germany, Ireland, Latvia, Luxembourg, Malta, the Netherlands and Sweden want the duties scrapped immediately, before the lucrative Christmas retail period, an EU diplomat said.

"Major shoe-producing countries Italy, Spain, France and Poland are all leading the charge to keep the duties," the diplomat added.

EU SPLIT

The EU regularly splits over dumping cases between its member countries supporting freer trade and those worried about Chinese competition against their own manufacturers.

The shoe duties were introduced in 2006 only after a compromise deal to keep them in place for just two years, instead of the usual five. If extended again, Commission sources say the duties would last at least five years.

But the industry and diplomatic sources said a compromise being considered by EU Trade Commissioner Catherine Ashton -- a Briton -- would allow the duties to lapse once they expire on Jan. 3.

"This would give certainty either way to EU importers before the busy Christmas period and at the same time allow EU producers the time to adapt and plan against cheaper imports from Asia," another source said.

European retailers and global shoemakers, led by sports shoe producers such as Adidas (ADSG.DE), Asics (7936.T), Nike (NKE.N) and Puma (PUMG.DE) want the "shoe taxes" axed given the gloomy economic outlook and dwindling consumer spending in Europe caused by the worst financial crisis in about 80 years.

But European manufacturers say they are unable to compete against low-cost producers in China and Vietnam and accuse those Asian governments of giving unfair subsidies that lower costs.

A review can take between 12 and 15 months, but the Commission had said it hoped to complete its work more quickly. It said it could reimburse the extra tariffs imposed during the review should it be proven that the duties were unnecessary.

"If we get a termination, that will be enough. We are not going to try and make life any harder for ourselves and threaten the Commission," a representative from an EU importer said. (Editing by Dale Hudson)