By Clare Arthurs BBC correspondent in Hanoi

The first major trade dispute between Vietnam and the United States is set to escalate after the US Commerce Department found Vietnam guilty of dumping catfish on the US market.

If the Commerce Department's preliminary ruling is upheld by the US government, Vietnamese imports will face penalty tariffs.

Last week, Hanoi warned that a negative ruling would damage the bilateral relationship.

The catfish row is the first major trade dispute since the two countries signed a bilateral trade agreement a year ago.

Higher tariffs

The Commerce Department issued a preliminary finding that Vietnamese catfish are being sold to US customers at less than fair market value.

Vietnamese sales of catfish have captured a fifth of a market worth almost $600m (�367m).

If Washington confirms the ruling, Vietnam will face punitive tariffs of up to 64%.

American catfish farmers, who have spent millions of dollars lobbying against the imports, will welcome protection of the US industry.

But Vietnam, concerned about more than 300,000 poor fishing families in the Mekong Delta, has warned that a negative ruling will harm economic and trade relations.

Trade snags

The two former enemies signed a bilateral trade pact, a milestone in their warming relationship.

But Vietnam has been feeling the pinch of real world politics since the catfish dispute began about two years ago.

The US side first accused the imports of being contaminated by pollution. Then, last year, it forced Vietnamese exporters to re-label the fish, which are now called basa or tra when sold in the US.

Vietnamese officials have indicated that punitive US action would undermine trust in the US and its stated policy of trade liberalisation.

Hanoi has warned that it regards the dumping ruling as being against the spirit of the bilateral trade pact and the principle of fair competition.

Vietnam is hoping to join the World Trade Organisation like its giant neighbour China, though talks are still at an early stage.