The dispute dashed hopes that the two-day meeting of the Group of Seven leading industrial nations to discuss ways of cutting unemployment would endorse the British emphasis on jobs flexibility as the solution.
William Waldegrave, Chief Secretary to the Treasury, and Gillian Shephard, Secretary of State for Education and Employment, angered France and Germany by rejecting demands for the introduction of minimum labour standards in international agreements.
Mr Waldegrave said: "There is a considerable danger of seeing protectionism creeping in through the back door through such clauses." Britain was backed by Canadian and Japanese delegates who see export growth as the best way to raise standards in poor countries.
However, the European Union's social affairs commissioner, Padraig Flynn, will today call on the ministers to stop ducking the question of whether developing countries gain an unfair advantage from exploiting their workforce.
Earlier the French President Jacques Chirac said in his opening address that so-called social causes in trade agreements were the only way to avoid protectionism.
The row echoes European concerns that Britain will gain additional competitive benefits from opting out of the EU's Social Chapter.
There were further confrontations between Britain and its partners over the need for macro-economic co-ordination. Mr Chirac said economic, and especially monetary, co-ordination would be on the agenda at the next G7 summit in June.
Jacques Santer, President of the European Commission, joined the attack. In a clear reference to the recent Franco-German plan for a second exchange rate mechanism for currencies outside the single European currency, to which Britain is firmly opposed, he said: "We must co-ordinate our policies to prevent beggar-thy-neighbour policies which simply move the problems from one country to another."
Britain also found itself isolated in its approach to unemployment. Mrs Shephard claimed deregulation had given Britain a better record of job creation than other G7 countries. The perception of job insecurity was not fully borne out by the evidence, she said.
"Our record certainly is better than the other major European economies by far," Mrs Shephard insisted. This was due to refusing to accept the burdens of the Social Chapter and minimum wage, she said.
"Pain has to accompany any kind of change or restructuring. We had to face up to it," she said, agreeing that it would be difficult for the Continental economies to tackle inflexi- bility.
The US is the only G7 country to have a more deregulated labour market than Britain. But the Clinton administration is alarmed about growing income-inequality, and crime.
Britain could learn from Continental methods of vocational training, Mrs Shephard said, but "the message for the creation of jobs is absolutely clear. You have to have a strong economy. You have to reduce burdens on employers and you have to have a flexible labour market". Britain's G7 partners, especially the Germans, agreed that there was a role for structural reform of their labour markets, but they placed a much greater emphasis on social cohesion.
The summit, which ends today, was billed as an opportunity to exchange ideas on how to cut unemployment in the world's richest countries from its current level of more than 22 million.
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