The sweltering air at Mexico’s Caribbean resort of Cancun was heavy with expectation as nearly 7000 delegates from 146 nations opened critical World Trade Organization (WTO) talks on Wednesday aimed at securing a deal on loosening barriers to global trade.

On Tuesday, WTO director Supachai Panitchpakdi spelled out just how much is at stake a day before the crucial round.

"Failure is not an option. It would send a very damaging signal around the world about prospects for economic recovery and would result in more hardship for workers around the globe, particularly in poorer countries," Panitchpakdi told Reuters.

While the pressure will be intense on delegates to make progress on floundering trade negotiations started in the Qatari capital of Doha two years ago and forge a global trade deal by the end of next year, there will be plenty of hurdles to surmount.

It's all about the subsidies

At the heart of the negotiation lie the thorny issues of agricultural subsidies that have split countries and pitted poor nations and farm goods-exporters against trading giants the European Union and the United States.

Poor countries say both the EU and the U.S. must deliver on the promise made in Doha and eliminate $300 billion in subsidies they hand out each year to their farmers – six times more than they provide in development aid. Poorer nations insist the handouts and tariffs distort trade by denying them access to rich-country markets and discriminating against their farmers at home through heavily subsidized imports from rich nations.

The farm goods-exporting camp, whose members range from rich states like Australia and New Zealand to poorer developing countries such as Bolivia, as well as a larger group of 21 developing countries have indicated they will be putting aside their differences to air their grievances at Cancun and push for the dismantling of all farm subsidies.

"It is crunch time," Australian Trade Minister Mark Vaile told Reuters. "We have a choice of ... a better deal for efficient farmers around the world or we can stick with the injustices and the distortions of the past."

EU "ready to play ball"

The EU, blamed for massive subsidies that result in surplus export goods, has signalled it is willing to do its part to secure a better deal for poor nations, but has refused to agree to the key demand of eliminating all subsidies.

"The EU is ready to play ball," European Agriculture Commissioner Franz Fischler said. "(But) we cannot take a general commitment that we can phase out subsidies on everything," he added.

Fischler said in an interview with German daily Süddeutsche Zeitung, "An opening of markets in the West would only profit strong agricultural exporters such as Brazil, while Africa would fall through the cracks."

German Minister for Agriculture and Consumer Affairs, Renate Künast (photo) said there should be increased consideration for the interests of the developing countries at Cancun and the discussion shouldn’t just be limited to liberalization.

"It’s important that one at least says that subsidies should be dismantled at a varying pace. If we manage to agree on this principle, we can pursue a detailed debate in the next months about which products will be affected. I’m sure that the poorest countries will bring up cotton and sugar," she told Deutsche Welle before her departure to Mexico. The minister added that the goal of the WTO summit should be to design a protective mechanism for the poorest countries, so that “they can develop at all.”

The EU, for its part wants countries to agree to launch negotiations aimed at establishing new international regulations in four areas – investment, competition policy, customs facilitation and government procurement.

U.S. upbeat about outcome

The United States, which reached a framework agreement with the EU last month on farm reform despite other simmering trade rows, remains hopeful about the outcome of the latest WTO round. U.S. negotiators want developing countries to lower their own agricultural tariffs and the EU to agree to a formula that would harmonize the level of farm spending across the Atlantic by requiring Brussels to make deeper cuts.

"Many of us believe maybe the European Union can move more and we’ve emphasized we’re willing to talk about very sizeable cuts if we get (more) market access," U.S. Trade Representative Robert Zoellick said.

Demonstrations begin against trade round

Even as delegates scramble to reach a consensus amid jostling interests and goals over the next five days within a heavily-guarded convention center, they can count on large protests outside.

Thousands of anti-globalization activists, environmentalists and poor Mexican farmers descended on Cancun early this week with the first organized demonstration already held on the eve of the summit, eight kilometers away from the venue. Organizers expect further larger demonstrations in the coming week.

About 3,500 security officials have been deployed to prevent a repeat of the WTO’s Seattle summit in 1999, which was disrupted by violent demonstrations. Critics accuse the WTO of exploiting countries in the Third World through the globalization of the world economy.