VITAL world trade talks, critical to the health of the world economy, collapsed late last night in Mexico after rich and poor nations failed to bridge deep divisions over agriculture and investment rules.

The meeting of key ministers at the World Trade Organisation (WTO) Conference in Cancún fell into disarray yesterday after the developing countries rejected demands by the 15-nation EU to start talks on global trade rules on investment, competition policies, the awarding of government contracts and cutting the red tape and corruption that shackles trade.

The four sets of proposals, named the “Singapore issues” because they were raised at a WTO meeting in the Asian state in 1996, were being pushed by Europe and Japan. They were resisted by a large and powerful alliance of poor nations, led by India and Malaysia, which feared that rules on competition and investment would harm their ability to regulate their own economies. Delegates also failed to agree on how fast to dismantle $300 billion (£187 billion) in subsidies that wealthy states pay their farmers.

George Oduor Ong’wen, a Kenyan delgate, said: “The differences were very wide and it was impossible to close the gap.”

Rafidah Aziz, Trade Minister of Malaysia, blamed the failure of the talks on the refusal of rich countries to heed the objections of the developing world. “They kept demanding things that others couldn’t deliver,” she said.

Martin Redrado, negotiator for Argentina, claimed the failure meant that the WTO would be unable to conclude a market-opening global trade treaty by the end of 2004 that the World Bank had said would add as much as $520 billion to global incomes by 2015 and lift 144 million people out of poverty.

The embarrassing collapse of the talks is the second big defeat for the WTO. In 1999 similar talks in Seattle fell apart amid riots and recriminations. The collapse is also a blow for President Bush, who had made a series of calls to leaders of developing nations in the past few days in an attempt to broker an agreement.

However, the WTO remained defiant last night, calling the the collapse of the talks a “setback”. The organisation pledged to hold another conference by December 15. In a statement, the WTO said that it planned to take action “necessary at that stage to enable us to move towards a successful and timely conclusion of negotiations”. The WTO added that it reaffirmed all its Doha declarations and decisions of 2001 and would continue to work on outstanding issues with a renewed urgency.

Mr Redrado said delegates would have to “pick up the pieces” and look for a new consensus. “No one can feel satisfied with a failure,” Mr Redrado said. “All of us would have been better with new rules.”

Ivonne Baki, Foreign Trade Minister of Ecuador agreed, saying: “It’s not the end — it’s the beginning.”

Celso Amorim, the Foreign Minister of Brazil said: “We will not abandon the WTO. It’s a setback not to have a result now. But we are optimistic in the long run”.

Robert Zoellick, US trade representative, said he no longer believed it was possible to complete a new global deal on tearing down barriers to commerce by the end of 2004. He said: “It is hard for me to believe, in the position we are now, that we will be able to finish on time.”

Despite the WTO’s optimism that talks would be re- ignited later this year, representatives of development charities celebrated the collapse of the talks by dancing in the hallways of the conference centre and hugging one another.

The advocacy groups hailed the new sense of unity and purpose among the G21, an alliance of poorer nations that includes representatives from Latin America, Africa and Asia.

Phil Bloomer, of Oxfam said: “In the past, rich countries made deals behind closed doors without listening to the rest of the world. They tried it again in Cancún, but developing countries refused to sign a deal that would fail the world’s poor people.”

The collapse of the talks came despite an eleventh-hour concession by Pascal Lamy, EU Trade Commissioner, to the poorer nations in an attempt to stop the talks ending in failure. With the deadline ticking away on discussions earlier in the day, M Lamy agreed that disputed plans for rules on investment and competition could be treated separately. The EU originally insisted that these issues be dealt with together.

The disagreement on these Singapore issues proved a distraction from the key farming issues that had dominated the rest of the conference.

The developing nations had hoped to slash the subsidies that richer countries pay their farmers, to make it easier for their farmers to compete in a global economy.