"We do not rule out litigation at the WTO," Chinese Vice-Minister of Commerce Zhong Shan said after talks in New Delhi with Commerce Secretary G.K. Pillai, referring to the toy, anti-dumping and other disagreements with India.

"But (now) we are in bilateral consultation," he said, calling such an approach "the best way forward."

The two sides agreed to set up joint working groups that would meet on a rotating basis every three months in the two countries to resolve trade issues, the United News of India reported.

Earlier this month, India's government relaxed a ban put into effect in January on imports of Chinese toys that had stoked trade tensions between the world's two biggest emerging economies.

But in place of the blanket ban, New Delhi imposed strict demands for safety guarantees on Chinese toys, which have come under scrutiny after high-profile scares over millions of toys shipped to the United States and Europe.

In a submission to the WTO committee on technical trade barriers earlier this week that stopped short of initiating a formal complaint, China said the safety conditions could be seen as discriminatory and a violation of WTO rules as they applied only to Chinese toys.

But Pillai told a joint news conference he had assured the Chinese vice-minister that India was in the process of overhauling safety standards for imports from all countries.

"I told them this is being examined by the government and these (safety) standards for import of toys would be extended to all countries. Similar standards would need to be imposed on domestic manufacturers," he said.

"We are not worried about China taking the dispute to the WTO," he added.

India has consistently maintained its action against Chinese toys conforms to WTO rules.

India called separately for both sides to boost trade and economic ties to minimise the effects of the global slowdown. The crisis has raised fears of increasing protectionist measures.

"Given the immense potential the two countries have, in both production and the consumption capabilities, we need to work more closely to remove all the minor irritants," Pillai said in a statement, asking China to look at allowing a wider range of exports from India.

Trade between the two countries has soared to more than 51 billion dollars in 2008-09 from 38 billion dollars the previous financial year.

The Indian statement said both nations wanted more bilateral investments, highlighting such sectors as petrochemicals, steel, healthcare, information technology and automobiles.

China is India's largest trading partner while India is China's 10th biggest trading partner but irritants between the two have surfaced.

China's commerce ministry has complained that since October India has launched 17 trade investigations into Chinese products, including 10 anti-dumping probes, and curbed iron, steel, chemical and textile imports.

Various countries have been moving to shield domestic industries against the worldwide slowdown but India has insisted it opposes trade protectionism.

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