Her father is Jaweed al- Ghussein, chairman of the Palestine National Fund, and a member of the PLO's executive committee.
Continuing her evidence in a libel action she has brought against the People newspaper, Mrs Bauwens, 31, of Chelsea, west London, was asked her reaction to newspaper reports of the first day's proceedings.
The London Evening Standard had carried a picture of her lying, fully clothed, on a bed above a headline asking: 'Did you visit a flat provided for Mr Mellor?'
Mrs Bauwens said: 'It damaged me. The implication here is very clear. My husband and I were very upset. I actually threw up last night. I don't think this is the kind of thing they should be allowed to do.'
The Star had paraphrased part of the cross-examination by George Carman QC in a headline: 'Did Minister for Fun visit you without his wife?'.
Today had reported her statement that Mr Mellor had visited her flat during the day for a tea or coffee as a front page headline: 'I had Mellor for Tea.' The Sun had a picture of her in a leotard, sitting on a rocking horse, with the headline 'Mellor's Mane Girl'.
She said the innuendo from those reports was clear, and it upset her, and she believed it had been the intention of the defence to produce such reports.
She insisted: 'I have nothing, absolutely nothing, to be ashamed of in my friendship with the Mellors.'
She added that 'for the record' she had never visited a flat provided for Mr Mellor in King's Yard, Mayfair, a question ruled irrelevant on Monday after an objection from her counsel, Richard Hartley QC.
Mr Mellor's wife, Judith, attended most of yesterday's hearing, and at lunchtime posed arm in arm outside the court with Mrs Bauwens, smiling for photographers.
Mrs Bauwens' action claims the article in the People in September 1990, headlined 'Top Tory and his pal from the PLO', and an editorial which posed the question: 'We ask you, Mrs Thatcher, just what would make your minister blush with shame?' suggested she was a 'social leper' who was not fit to be seen in the minister's company.
The People denies libel.
Cross-examined by Mr Carman for the People, Mrs Bauwens said at no time during the holiday had Mr Mellor discussed with her the possible political embarrassment of being with the daughter of a leading figure in the PLO during the Gulf crisis.
Nor had he discussed it with her during the eight weeks before the holiday, although there had been an attempted PLO attack on holidaymakers in Tel Aviv, which had led the United States government to break off relations with the PLO. Mr Carman asked her: 'Did you appreciate, and do you appreciate, that at a very politically sensitive time when British lives were at stake in the Middle East, with hostages taken, it was important for a government minister to support the Government politically on the sensitive issue?'
Mrs Bauwens said: 'I appreciate it, but I don't think Mr Mellor did anything which did not show his support of the Government.'
She said that, during the August 1990 holiday at her rented six-bedroom Marbella villa, when Mr Mellor was accompanied by his wife and their two sons, he called his office several times to find out if he needed to go back.
She also later found out that John Major, who succeeded Margaret Thatcher as Prime Minister that November, had later made it known to Mr Mellor that he saw 'no reason' for Mr Mellor to be ashamed of his association with her or her family.
Mrs Bauwens paid for the villa and the Mellors' flights.
She said it 'might have been legitimate to criticise Mr Mellor' if her father had been on the holiday.
But as he was not, she repeatedly asked Mr Carman: 'What has it got to do with me?'
Mr Carman asked Mrs Bauwens if she knew, at the time of the Spanish holiday, that responsible newspapers and government publications had accused PLO factions of being involved in terrorism in the 1980s.
He referred to a number of terrorist actions, listed in the People articles, for which the PLO had been blamed, including the Achille Lauro cruise-liner hijack of October 1985 and the Lockerbie disaster (in 1988) in which 375 people died.
She said: 'If what you are saying is right, I would be very surprised that Her Majesty's Government would allow this organisation to have an office here in the UK.'
The opening witness for the defence was Richard Stott, editor of the People at the time the articles appeared, and now editor of the Daily Mirror.
He said the criticism in the articles was of Mr Mellor's judgement in remaining in Marbella, having gone there in the first place on a 'freebie holiday'.
'We wanted to point out that Mr Mellor's political judgement was extremely flawed in our view. It was hugely in the public interest that it should be reported,' he said.
'The alternative to printing it would be to note it and suppress it.'
He said he would have used the story irrespective of whether it had been a Labour or Tory minister involved.
The case continues today.