Mr Major sent a message to Dr Mahathir Mohamad, the Malaysian Prime Minister, seeking 'clarification' after being told the Malaysian Cabinet had decided to announce today what amounts to a resumption of the 'Buy British Last' policy operated by Kuala Lumpur in the early 1980s.
Anwar Ibrahim, Malaysia's Finance Minister and Deputy Prime Minister called today's press conference which senior UK businessmen feared would stop the huge growth in British exports. They totalled pounds 952m last year.
Mr Major had earlier come under pressure from some of Britain's biggest and best known companies to ensure that the new dispute - in the wake of the row over Britain's pounds 234m aid for the pounds 397m Pergau Dam project - does not lead to a permanent bar on trade.
Reports of Malaysia's intended announcement yesterday flooded into the Foreign Office, the Department of Trade and Industry and Downing Street. British diplomats were checking reports that matters had been inflamed after the Sunday Times reported that a major British construction company, Wimpey, had been involved in negotiating 'special payments' to senior Malaysian politicians in 1985 in pursuit of a pounds 615m contract.
Malaysian Opposition politicians, who intend to raise the Pergau issue when Parliament resumes in April, are also expected to highlight allegations, widely reported in the British press, that some pounds 35m was paid in bribes to members of the Malaysian government in connection with contracts to build the controversial dam.
The importance to Britain of trade with Malaysia has been underlined by allegations that aid - including pounds 234m for the dam - was linked to arms sales and other trade. British exports to Malaysia increased by 50 per cent last year over 1992.
Companies closely involved in trade include GEC, BICC and Trafalgar House. All are thought to have expressed alarm to senior ministers. Among construction projects that may be affected are a big dam project in northern Sarawak and the new pounds 3.4bn Kuala Lumpur international airport, due to be built by an Anglo-Japanese consortium.
Only yesterday Abdul Ghani Aziz, Malaysia's air force chief, was quoted as saying Malaysia might want to buy more British Hawk 200 fighter jets above the 28 sold as part of a pounds 1bn arms deal signed in 1988. That deal and the agreement to fund the dam came after efforts in 1985 by Margaret Thatcher, then prime minister, to improve relations with Dr Mahathir.
Baroness Thatcher says in her memoirs that Dr Mahathir 'felt we had not treated his country with sufficient respect as an independent nation'. The fear among senior ministers is that he could now revert to that earlier stance. They suspect he fails to appreciate that the Government has no responsibility for press reports.
Today issue of the New Straits Times, the pro-government newspaper in Kuala Lumpur, makes no mention of an announcement but quotes a lengthy speech by Dr Mahathir in which he emphasises Malaysia's wealth - which he compares favourably to that of Saudi Arabia - and its importance as a leading Islamic nation.
David Howell, chairman of the Commons Foreign Affairs Select Committee, said last night that a bar on contracts would 'cause serious damage to the prospects of many, many British jobs'. Last night the Foreign Office would not confirm that Sir David Gillmore, head of the diplomatic service and a former High Commissioner to Malaysia, was preparing to fly to Kuala Lumpur as Mr Major's envoy.
The message from Mr Major was understood to have been conveyed through Duncan Slater, the present High Commissioner.
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