One Minister told the Observer, "it's a delicate balancing act. I'm sure most of the arguments you hear were used when the Victorians decided to stop sending children into factories. Our line is that these children should be getting an education, and that's where the future is going to lie, but it makes you uncomfortable because we are the rich countries telling the third world how to develop their economies."

The government has been appalled by harrowing stories of child labour. A recent stark example that came to light involved young children hand-stitching World Cup standard rugby balls.

Some were working upto 12 hours a day in Punjab, reportedly paid between 10 pence and 40 pence aday, many of them also handling dangerous chemicals without protective clothing.

According to the report, last week, Brajesh Mishra, national security adviser to Prime Minister Atal Behari Vajpayee, on a goodwill visit here met Trade and Industry Secretary Stephen Byers and Foreign Secretary Robin Cook warned them privately of India's fear of being locked out of vital western markets because of the country's heavy dependence on child workers. A few years ago India's firework industry calculated that employing children saved about Rs 32 million a year in labour costs.

A survey of children employed to stitch footballs in Sialkot, Pakistan, revealed that they provided nearly a quarter of their families' annual earnings.

There are believed to be as many as 250 million working children around the globe, a high proportion of them as young as five. Nearly half of them are said to be working full-time. More than 150 million are in Asia, 80 million in Africa and 17.5 million in Latin America, according to theInternational Labour Organisation. About 80 per cent of all children's work is unpaid. For those who are paid, wages often barely ward off starvation.

Child labourers in Nepal, for instance, earn about one dollar a week, the report said. A spokesman for Save The Children, which has published a study on world child labour, warned trade sanctions alone would not deal with poverty. Surveys in India, Ghana, Indonesia and Senegal in 1992-93 revealed that three-quarters of working children toiled in family businesses.

Surveys in Nicaragua and Male have suggested that children in rural areas accept work as part of normal life and enjoy the company.

Most child labourers work in farming, including about 34 million of India's 40 million child workers, and about one-fifth of the entire workforce, on African plantations. Millions more children were in domestic service. There could be 1.5 million such kids, under 15, in Indonesia.

The most scandalous form of child exploitation is the sex industry. One estimate isthat a million children a year, most of them girls in Asia, are forced into prostitution, the report said.

When the new policy was being thrashed out at cabinet committee meetings, International Development Secretary Clare Short warned that third world governments would interpret a trade ban as a device by rich nations to protect their domestic producers. Buyers and education secretary David Blunkett argued that these countries' long-term prosperity would be secured by educating the children.