Ban on trade deals to cost Britain millions

BRITISH hopes of quickly riding out the Malaysian trade ban were dashed last night. A British apology would make no difference, Anwar Ibrahim, the Malaysian Deputy Prime Minister, said. The ban on new deals will cost British companies millions of pounds and perhaps thousands of jobs.

The Government has ruled out retaliation. The ban was imposed yesterday by a Malaysia increasingly annoyed at coverage by the British news media of the Pergau dam project and links between aid and arms deals. Last night Mahathir Mohamad, the Malaysian Prime Minister, accused the media of having a 'colonial attitude that all Asians are corrupt and can be bought'.

He said it was up to the British media what happened next. 'If they keep on like this, there will be no more contracts for British firms.' For the time being, he said, those contracts that are committed will continue, but those still being processed will stop.

The Foreign Office yesterday abandoned plans to send Sir David Gillmore, Head of the Diplomatic Service, to Kuala Lumpur to repair the damage, after being warned by British diplomats in Malaysia that it would do more harm than good.

A Whitehall source said: 'We think it is best to let them think what they have done, that they have made their point and, hopefully, it will come right. We are riding out the storm, until the dust settles a bit.'

Any diplomatic offensive would also have been undermined by further Commons investigations next week into the Pergau dam affair.

Douglas Hurd, the Foreign Secretary, who is to be questioned over his decision to approve pounds 234m aid for the project, said yesterday: 'It is clear . . . they are acting because of frustration and anger at some British press reports and comments. But, of course, they are hitting at the wrong target. The British companies and the workers are not responsible for press reports or the hostile comments of Labour politicians.'

However, the Foreign Secretary added fuel to the allegations that the Pergau aid was given in return for arms contracts. He said arms and aid were 'entangled' for a few months in 1988, when Baroness Thatcher signed the deal with Dr Mahathir. Mr Hurd has previously denied any formal link between the aid and a pounds 1bn defence deal.