In what would be the biggest commitment to ending child labour ever undertaken by a major retailer, Gap Inc is drawing up plans to label its products 'Sweatshop Free'.

The ambitious pledge, which would place the firm at the forefront of the battle to end sweatshops, comes in response to an undercover Observer investigation which last week exposed one of the firm's Indian suppliers employing children as young as 10 to make garments.

Yesterday, Gap's senior vice president, Stanley Raggio, flew from San Francisco to New Delhi to meet the anti-sweatshop charity the Global March Against Child Labour, to hammer out proposals to tackle child labour.

According to Bhuwan Ribhu, a lawyer from the charity, the US conglomerate set out a series of ambitious proposals including a move that would see it relabelling its garments to allow the consumer to directly track online exactly where they are made.

The system would closely mirror the highly successful RugMark programme which has largely eradicated child labour in India's carpet industry.

As an organisation operating independently of the carpet industry, RugMark certifies carpets bearing its label are free of illegal child labour. This is accomplished by monitoring looms and factories through surprise and random inspections.

Ribhu said: 'We spoke at length to Gap and they informed us they are looking at a certification system that marks a product with a label "child labour free". This would be a bold step as the firm would leave themselves open to prosecution if children were found making their clothes again. Gap also intimated to me that they are considering using independent monitoring of their suppliers in Asia and this would operate along similar lines to the RugMark programme. The firm is also calling on their competitors to adopt a similarly tough stance.'

He added: 'The Observer's report should act as a wake-up call for the entire industry and the business community at large. The industry should now come together and make a strong commitment against child labour and the trafficking of children for forced labour in their entire chain of supply and sourcing. This should not only be in words but in a clear and concrete plan of action.'

Speaking from San Francisco, Gap spokesman Bill Chandler confirmed yesterday's meeting between senior Gap executives and the Global March Against Child Labour and told The Observer the firm was laying down the groundwork for a major commitment to fight the problem.

'Gap Inc has had many conversations with experts in the field before and obviously since The Observer investigation,' he said. 'The company is open to new ideas; we have shown that in the last decade. We are open-minded, but at present discussions are ongoing and it is too early to outline the extent of our proposals.

'We genuinely appreciate that The Observer identified this subcontractor [using child labour], and we acted swiftly in this situation. Under no circumstances is it acceptable for children to produce or work on garments.'