G7 rebuffs Britain over labour standards

DIANE COYLE

Economics Editor

The Government suffered a set back at the Group of Seven jobs summit which ended in Lille yesterday when other ministers insisted on pursuing the need to improve labour standards in developing countries in order to help cut unemployment in their own.

But the Secretary of State for Employment, Gillian Shephard, and the Chief Secretary to the Treasury, William Waldegrave, said the British approach of combining sound macroeconomic policy with deregulation of the economy had been endorsed by the summit.

The British ministers clashed with their American, French and Italian counterparts over the implications of a key section of yesterday's communique. It said the G7 "noted the importance of enhancing core labour standards around the world and examining the links between these standards and international trade in appropriate forra."

Its inclusion marks a victory for US and French concerns that practices such as child and forced labour make Third World goods unfairly cheap.

Mr Waldegrave said the summit had agreed that the Organisation for Economic Cooperation and Development and the International Labour Organisation would undertake further studies. But Britain would oppose any move to take the discussion to the World Trade Organisation, the body which regulates international trade. The Treasury Secretary said: "We are not convinced that using the WTO in this way would not be a route for protectionism by the back door."

However Robert Reich, the US Labour Secretary, said it must address the issue. "The WTO is the proper forum for discussing labour standards," he said. The row is certain to continue at further international summits this year.

The summit's emphasis on labour standards echoes European concerns about whether Britain's opt out from the EU's Social Chapter gives it an unfair advantage. The EU Monetary Commissioner, Yves-Thiboult de Silguy, said: "Everyone has to be playing the same game. You would not put footballers and rugby players on the same field and ask them to play baseball."

The communique endorsed French President Jacques Chirac's call for a "third way" combining Anglo Saxon flexibility with European social standards. It said sound macroeconomic policies and structural reforms were both needed.

Mrs Shephard said: "There was a very clear acceptance that the most important thing in the field of jobs and employment is the pursuit of a sound economy and a deregulated labour market."

Mr Waldegrave downplayed the need for additional measures to promote social cohesion. "The best way of pursuing social cohesion is to end the division between the haves and the have nots in terms of jobs," he said.

There were signs that the American team was unhappy about the lack of growth in some European countries and would prefer to see lower interest rates.