By Tom Miles

GENEVA (Reuters) - A "reckoning" over China's unfair trade policies is urgent and is too big for the World Trade Organization to handle, U.S. ambassador Dennis Shea told a WTO meeting on Wednesday.

Washington has raised the stakes in its trade dispute with Beijing, threatening 10 percent tariffs on $200 billion of Chinese goods. In response, Beijing accused the United States on Wednesday of bullying and said it would complain to the WTO.

However, Shea said the Geneva-based WTO was not the place to settle the row.

"Given China’s very large and growing role in international trade, and the serious harm that China’s state-led, mercantilist approach to trade and investment causes to China’s trading partners, this reckoning can no longer be put off," he said.

"It is clear, moreover, that the WTO currently does not offer all of the tools necessary to remedy this situation," Shea told the two-yearly WTO review of China's trade policies.

Under President Donald Trump, the United States has demanded that the WTO's dispute system is changed to stop the United States getting what he regards as an "unfair deal".

To back up his demands, Trump has blocked appointments to the WTO's appeals chamber to replace judges as their terms expire. Unless he relents, the world's trade dispute system will be unable to operate by the end of 2019 or sooner. Trump has also made a veiled threat to leave the WTO.

Vice Commerce Minister Wang Shouwen defended China's record at the meeting, and acknowledged the severe challenges facing the WTO, according to a Geneva trade official.

Speaking before Shea, he called on all WTO members to stand up to bullying, protectionism and unilateralism, and called on them to tackle the systemic threats posed by Trump's tariffs on steel, aluminum and cars, as well as his tariffs directed solely at China.

Shea said the Chinese state's role in the economy had increased. Foreign firms doing business in China or competing with Chinese rivals faced deeper and broader obstacles, he said, adding that Beijing was providing "massive, market-distorting subsidies" and "skewing the playing field... in myriad ways".

The WTO's dispute system focused narrowly on specific policies, and could not deal with a broader situation where state-led policies prevailed over market forces. New WTO rules were unlikely to be negotiated to deal with the situation, and would in any case take too long.

"The best solution is for China finally to take the initiative to fully and effectively embrace open, market-oriented policies," he said.

Many other WTO members addressed the meeting, mostly acknowledging China's efforts to modernize its policies and urging it to continue. Some, such as Japan, Canada, the European Union and Switzerland, aired concerns such as cybersecurity, excess capacity and the state's role in the economy.

(Reporting by Tom Miles; editing by Stephanie Nebehay and David Stamp)