UN leader Ban Ki-moon said it was a "disgrace" that there is no global arms trade regulation as he opened treaty talks held up by Palestinian demands for a place in the negotiations.
The 193 UN members have until July 27 to hammer out a deal for a treaty on dealing in conventional weapons, which experts estimate to be worth more than $70 billion a year.
"Poorly regulated international arms transfers are fueling civil conflicts, destabilizing regions and empowering terrorists and criminal networks," Ban told the meeting, which started a day late because of the Palestinian dispute.
"We do not have a multilateral treaty of global scope dealing with conventional arms. This is a disgrace," he said.
"The world is over-armed and peace is underfunded," Ban added. He highlighted how military spending is now over $1 trillion a year and the past six decades of UN peacekeeping operations have cost less than six weeks of current global military spending.
Ban said there have to be standards for arms exports and strict national legislation, though he acknowledged that "the global arms trade touches on core national interests."
UN states have spent seven years preparing for the arms trade treaty talks.
All of the major producers have reasons to limit any treaty, though all say they want a comprehensive document.
The United States is by far the world's biggest arms trader, accounting for more than 40 percent of conventional weapons sales. Britain, China, France, Germany and Russia follow.
The United States -- which produces six billion bullets a year -- wants to exclude munitions, according to diplomats. China does not want the treaty to cover small arms, which it exports en masse to developing countries.
China, Russia and Arab countries say the accord's criteria are politically motivated.
European nations say they want a treaty that at least makes the arms trade more transparent. Ahead of the negotiations, the foreign ministers of France, Britain and Germany and Sweden's trade minister called for a treaty that covers all conventional weapons, including small and light weapons, all munitions and related technologies.
They said any treaty should be legally binding, but nationally enforced.
The talks should have started on Monday but were held up by a dispute over Palestinian representation at the conference. Formal negotiations were suspended for several hours after Ban's speech as diplomats sought a solution.
Palestinian envoy Ryad Mansour told reporters his delegation was demanding a place at the talks because the Palestinians are members of the UN's cultural body UNESCO.
As the arms talks are an international conference of states, they should follow the tradition of being open to members of the specialized UN agencies, the Palestinian diplomat said.
Israel and the United States were opposing any solution that gave the Palestinians a statute higher than their position as observers at the United Nations, UN diplomats said.
The Vatican, which is also an observer at the UN, had demanded a similar status to the Palestinians, who have launched a campaign in the past year to seek greater international recognition.
"We are demonstrating a tremendous amount of flexibility to allow the conference to move forward," Mansour told reporters.
But in the end the Palestinians and the Vatican agreed to sit among the delegations, but as observers, without pressing to be recognized as participating member states.
"There is no time to waste on procedural issues... we have lost two days, it is regrettable because the world should focus its attention on developing this treaty," said Brian Wood, who works on arms issues with Amnesty International.