EU foreign ministers agreed to scrap trade barriers with third world countries on Monday and challenged the US to follow the European lead.

The announcement followed a row over the "Everything but arms" initiative and a decision that left France isolated in its opposition.

The proposals, aimed at relieving poverty in the world's poorest nations through relaxing trade tariffs, were opposed by France and Spain, but was backed by a majority of member states, including Britain. Many countries were furious at France's "blocking" tactics which were regarded as defending narrow national interests at the expense of the world's poor.

The scheme will eventually remove tariffs on all imports from the 48 least developed countries or LDCs, those with national average incomes of less than a dollar per person per day.

A Foreign Office spokesman said: "This is a good outcome for the least developed countries, for the EU, and for the EU's ability to deliver on its commitment to help reduce poverty worldwide. It is also a victory for free trade. The 48 LDCs are characterised by their exclusion from world trade: their share of world trade is less than 0.5 per cent of the total and falling. The agreement of this proposal will make a real difference."

The move, which is largely symbolic in overall terms of EU trade, will be crucial to persuading third world countries to agree to launching a new world trade round later in the year.

Pressure from European farmers had already led the commission to water down the original proposals in three crucial and "sensitive" areas, delaying the opening of banana markets until 2002, with sugar and rice held back until 2006.

Compromise proposals brokered by the Swedish presidency and agreed without a vote on Monday with only France dissenting will see annual tariff reductions for banana imports of 20 per cent from 2002 and a 20 per cent reduction, followed by a 50 then 80 per cent reduction on tariffs on sugar and rice in 2006 to 2009.

"It is gratifying that we were able to reach this compromise. This means that we can go the whole way and open up the EU market to all goods from the least-developed countries," said Swedish minister for Trade, Leif Pagrotsky.