Hanoi  - South Korean President Lee Myung Bak said Wednesday that his country would recognize Vietnam as a market economy along with taking other steps to upgrade their relationship.

Speaking to reporters after meeting Vietnamese President Nguyen Minh Triet in Hanoi, Lee said the two countries had agreed to upgrade their relationship to a "strategic partnership."

The two leaders said they had also decided to establish dialogue between their defence and foreign ministries.

The market economy status could help protect Vietnamese exporters to South Korea against protectionist trade measures.

Vietnam, whose economy has been gradually transitioning from socialism to the free market since the 1980s, has fought hard to be recognized as a market economy, but so far, fewer than 20 countries accord it that status.

In June, the European Union granted Vietnam "ad-hoc" market economy status but withheld full recognition. The lack of recognition as a market economy has made it easier for the EU to impose anti-dumping tariffs on Vietnamese footwear and for the United States to impose such tariffs on Vietnamese shrimp.

South Korea is Vietnam's fourth-largest trading partner with bilateral trade expected to top 10 billion dollars this year. That represents a 20-fold increase since the countries normalized relations in 1992.

South Korea is the second-largest foreign direct investor in Vietnam, pumping more than 20 billion dollars into the South-East Asian country. About 85,000 South Koreans work in Vietnam while
100,000 Vietnamese work in South Korea.

Vietnam's exports to South Korea consist mostly of agricultural products, seafood and raw materials. Vietnam's imports from South Korea are largely industrial components for manufacturing, especially for the many South Korean companies with factories in Vietnam.

Lee was due to travel on to Cambodia and Thailand, where he is scheduled to take part in a regional summit of the Association of South-East Asian Nations.(dpa)