If you think about the WTO and the way we measure trade flows around the world, it assumes a very simple model, in which a product is made in Country A and it is shipped to Country B to be consumed. That is the fundamental assumption of the model. The question is where does the substantive transformation that creates the product take place…because that is where all of the value-added is.
But if you look at the model of dispersed manufacturing, the same product actually can be made in several countries before it becomes a finished product. And, if you say the substantive transformation then occurs in the final stage of finishing and basically that becomes the country of origin — that last country, so to speak, gets charged for the full trade statistics, whereas it may capture only a portion of the total value added, it may only capture say 30% of the value added.
And so the problem with traditional trade statistics is that you are using a system to describe a world that has already evolved and no longer fits the model. Therefore, you get all of these distortions.
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