BEIJING -(Dow Jones)- Ecuador President Rafael Correa shrugged off a potential arbitration suit from China's oil firms over his country's new windfall tax, and criticized the international system for solving commercial disputes as serving Western interests.

Correa justified the introduction of the levy - which diverts 99% of extraordinary revenues from private oil firms to the state when oil prices are high - on the grounds that Ecuador was still only receiving $3-$4 a barrel in royalties from oil sales even though the price of crude has risen close to $100 a barrel.

"These are the extraordinary benefits that the investor hasn't done anything specific to receive. The benefits should go to the owner of the resource," Correa said at a press conference during a state visit to China.

South America should have its own arbitration courts separate from the international system, Correa said, but he didn't say definitively whether Ecuador would fight a suit if one was filed by Andes Petroleum.

However, Galo Chiriboga, Ecuador's oil minister, said: "We want to arrive at an agreement and avoid arbitration, but if it happens then Ecuador will defend itself."

CNPC and China Petrochemical Corp., known as Sinopec, will now set up a working group to discuss problems with their oil projects in Ecuador, Chiriboga said.

The group would continue talking until the end of this year "on the basis that a solution offers a reasonable profit to both sides," he added.

Chiriboga said Andes Petroleum was one of five groups prepared to renegotiate oil contracts in Ecuador. The other parties include Spain's Repsol YPF S.A. ( REP) and Brazil's state-owned Petroleo Brasileiro SA (PBR), or Petrobras.

The arbitration issue is sensitive for China as its state-owned producer, China National Offshore Oil Corp., may be taken to the Arbitration Institute of the Stockholm Chamber of Commerce in Sweden by U.S. company ConocoPhillips (COP) to resolve a contractual dispute over China's own windfall tax on oil sales.

Correa said he "wasn't surprised" that more countries were imposing windfall taxes in the wake of the rapid run-up in oil prices. At 0430 GMT, crude was trading at $97.44 a barrel on the Globex electronic platform.

Despite the potential threat of arbitration, Correa said China and Ecuador are looking at two new projects in the oil sector.

According to Chiriboga, these include enhanced oil recovery at oil fields more than 30 years old using techniques such as the injection of carbon dioxide.

"China is going to send some experts to study and analyze the technical conditions of the fields, and after this it is going to present a concrete plan, " he said.

Sinopec and CNPC may also take part in the upgrading of refineries in the Amazon region and on the coast, the oil minister added.

-By David Winning, Dow Jones Newswires; 8610-65885848; david.winning@ dowjones.com