The Secretary of State for International Development told a conference on children's rights that she believed neither boycotts nor trade sanctions were effective.
Most British-based aid agencies believe shoppers' boycotts of goods made by child labour can leave such children on the streets or in even more exploitative work, such as prostitution. But they attacked Ms Short's resistance to trade sanctions and argued that businesses profiting from cheap labour in the developing world should be forced to put something back.
On the eve of the 10th anniversary of the UN Convention on the Rights of the Child, the secretary of state said it was important to understand why 250 million children across the world went to work.
"Parents do not let their children work in dangerous and exhausting industries by choice. They do so because they have to. We must be careful not to allow our sense of outrage to be used in ways which punish them for their poverty," Ms Short said.
But Jennifer Tonge, the Liberal Democrat spokeswoman on international development, said businesses should have to support working children by paying for health and education initiatives.
She said some initiatives by Ms Short's department had the effect of subsidising international companies. On one recent trip she had been taken to a Gap factory in Dakar where a health education facility was being paid for by the Department for International Development.
"DFID was actually subsidising Gap by providing health care and health education for the women in the factory," Ms Tonge said. "I think the company ought to be forced to provide that. I don't think you will ever wipe out child labour in the very poorest countries, but in Bangladesh the very rich are very rich," she said.
Aid agencies and campaigning groups have called for the World Trade Organisation (WTO) to adopt a "social clause" that would force developing countries to improve labour conditions in return for better trade links. Developing countries have opposed the idea - which is supported by the US - on the basis that it is protectionist.
Stephen Byers, the British Secretary of State for Trade and Industry, has proposed a joint forum between the WTO and the International Labour Office to discuss the issue.
Ms Short, though, took a strong line against such a "social clause", saying it "sounds plausible" but would not work. "The use of trade sanctions usually harms rather than helps the children concerned," she said. "This is because trade measures only impact on the export sector, which is small in the countries employing most child workers."
David Ould, deputy director of Anti-Slavery International, said there were many things that governments could do to help to alleviate the worst effects of child labour and poverty. Some forms of child labour were never acceptable.
"If you have got eight or nine-year-olds working 16 hours a day, then in anybody's terms that is not acceptable," he said. "They are almost certain to be better off wherever else they are."
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