GENEVA (Reuters) - China and the United States blamed each other on Tuesday for risking the destruction of the World Trade Organization, with Beijing’s ambassador decrying U.S. hostage-taking and Washington’s envoy calling China’s claims “Alice in Wonderland”.

The headquarters of the World Trade Organization (WTO) are pictured in Geneva, Switzerland, April 12, 2017. REUTERS/Denis Balibouse

U.S. Ambassador Dennis Shea, addressing the WTO’s General Council for the first time, began by attacking the judges of the WTO’s Appellate Body, whom he blamed for a “steadily worsening rupture of trust”.

“Something has gone terribly wrong in this system when those charged with adjudicating the rules are so consistently disregarding those very rules,” Shea said, according to a copy of his remarks provided to Reuters.

The United States has vetoed new appointments to the Appellate Body, causing a crisis at what is effectively the supreme court of world trade.

Shea said the judges had over-stepped their authority and had broken the rules by failing to observe a 90-day timetable for judging appeals. Many experts say the delays are caused by ever-more complicated disputes piling up in a congested system.

Chinese Ambassador Zhang Xiangchen, who had put the issue on the agenda, began by warmly welcoming “our new colleagues, especially Dennis”. But the cordial opening gave way to criticism of the “dangerous and devastating” U.S. actions.

“By taking the selection process as a hostage, the U.S. is abusing the decision-making mechanism of consensus,” Zhang said.

The U.S. veto, along with steel and aluminum tariffs and a threat to put $50 billion of tariffs on Chinese goods for alleged intellectual property theft, had systematically challenged the WTO’s fundamental principles, he said.

“Any one of these, if left untreated, will fatally undermine the functioning of the WTO. But the reality is that the WTO is currently confronted with ‘three hard blows’,” Zhang said.

The United States was reportedly seeking export limits from countries in return for exemptions from its steel tariff, which was “explicitly prohibited” by the WTO rules, he added.

ALICE IN WONDERLAND

WTO spokesman Keith Rockwell said many WTO members joined the debate, many expressing concern that the U.S. actions could make the system dysfunctional, and prepared to discuss its views while rejecting any linkage between judicial appointments and reforming the WTO.

“It was extraordinary in its intensity,” Rockwell said. “It was unusual to see these two very prominent members laying it all on the line in terms of what they think ... This was a discussion that we had to have.”

China denies U.S. accusations that it trades unfairly by subsidizing steel production and coercing foreign firms to transfer technology to Chinese competitors. Shea said he was “perplexed” by China’s assertion that it was a victim.

“Mr. Chairman, we have now entered the realm of Alice in Wonderland. White is black. Up is down,” he said.

“It is amazing to watch a country that is the world’s most protectionist, mercantilist economy position itself as the self-proclaimed defender of free trade and the global trading system. The WTO must avoid falling down this rabbit hole into a fantasy world, lest it lose all credibility.”

The WTO must not shield countries that undermined the global trading system, he said.

“If the WTO wishes to remain relevant, it must – with urgency - confront the havoc created by China’s state capitalism.”

U.S.-China trade talks will resume next week after failing to reach agreement last week, the White House said on Monday.