The world's richest countries on Friday formally launched a new fund to fight Aids, but divisions remained over how it should be administered and health charities said the amount pledged was inadequate. Kofi Annan, secretary-general of the United Nations, said the $1.2bn pledged to the fund was a "good beginning".

But he added: "Much more needs to be done in the fight against illness in the world. We need resources of more than $7bn-$10bn a year." Governments and corporations needed to do "as much as possible".

The leaders of the Group of Seven and Russia agreed to make the fund operational at the start of next year. The fund is intended to buy drugs and support health systems in poor countries to combat HIV-Aids, tuberculosis and malaria. Experts from UNAIDS, the United Nations agency, have calculated that an effective global campaign against HIV would cost $7bn-$10bn. With health charities saying that $1.2bn does not even begin to address the scale of the problem, the UN sought to play down the discrepancy between the figures, saying that only a part of the total spending needs to be delivered through a stand-alone fund.

The rest will come from other sources of bilateral and multilateral aid and - in middle income countries - from their own governments. After Friday's announcement the composition of the committee that will manage the fund was still not clear. The committee is likely to contain representatives of rich and poor country governments and experts from agencies including the UN.

But the balance of power on the committee, along with the possibility of inviting on representatives from private foundations, remained undecided. One significant difference of views is between the US and Europeans over the question of how the fund buys drugs. Europeans favour a system - perhaps an auction managed by a UN agency - in which drugs are sold in poor countries for a significantly lower price than they are in rich countries - so-called tiered pricing. The US is concerned that such an approach might undermine drug company patent rights, and believes that companies should be able to choose their own pricing policies.

Ellen 't Hoen of the charity Midecins sans Frontihres said: "The global fund is moving ahead but nobody seems to be willing or able to discuss the basic principles of how drugs will be procured. It's become clear that there is a divide between the EU and the US on that." Tony Burdon of Oxfam, the UK development NGO, said: "Unless the fund is drastically increased and used to buy cheap, generic medication, this start might only amount to lip service and corporate welfare."

Ms 't Hoen said that generic anti-retroviral drugs to combat Aids cost between a quarter and a fifth of those offered by US and European drug companies. Using generic drugs to treat 5m patients could cut costs from $5bn to about $1bn a year. The Bush administration has pledged $200m to the fund, describing it as a downpayment. Seth Amgott of Oxfam America said that figure appeared unfortunately to have put a cap on other governments' contributions.