An outdated and faulty measurement method has been exaggerating U.S.- China trade deficit, Pascal Lamy, director general of the World Trade Organization (WTO) said here Wednesday.

"If we look at U.S.- China bilateral trade deficit in added value, instead of gross volumes as we are doing at the moment, it shrinks by half." When China exports an Ipad to the U.S., there is four times more U.S. added value than Chinese added value, Lamy said.

When a car is manufactured in five countries, each contributing 1/5 of its value, today's customs system will report a total trade volume of three cars -- 1/5 + 2/5 + 3/5 + 4/5 + 1 = 3. Trade volume cannot indicate the truth of a country's trade: how many jobs are created and where does competition take place, he said.

The current way of measuring international trade came from "the middle ages" when a product is made in just one country and traded to another. Now products are made in many countries and the measurement is "totally misleading", Lamy said.

In reality, what China sells to the rest of the world contains added value from Japan, South Korea, Thailand and many other countries. "If one understands that, the notion that China has invaded the planet with made-in-China goods does not make sense at all," he added.

The current measurement says China has a trade surplus and U.S. has a trade deficit. But the bilateral balance is meaningless as long as people don't look into where does the product really come from? "It's not made-in-China, or made-in-U.S.. It's made in the world," Lamy said.

"Trade should be measured as the sum of value addition through participation of world trading," he said.

The U.S.-China trade deficit was 295.5 billion U.S. dollars in 2011, up 8.2 percent year on year. China's overall trade for 2011 reached 3.6 trillion U.S. dollars, but its overall surplus hit a five-year low at 155 billion U.S. dollars, down from 2010's 184.5 billion U.S. dollars, according to China's Ministry of Commerce.

Answering a question on the recent trade friction between China and the U.S., Lamy said it will not result in trade war and adjudication will be made in a year or 18 months.

Last week, China challenged U.S. countervailing duties over 22 categories of Chinese products, accusing the United States of abusing WTO rules and infringing the legitimate rights of Chinese firms.

The rising number of U.S. measures against China or Chinese measures against U.S. is expected as the two countries' bilateral trade volume grows, he said.