Michael Petter, former head of the Department of Trade and Industry's (DTI) Middle East branch, said he was 'rebuked' by Cabinet officials when he argued that Customs activity should be scaled down and fewer resources devoted to it.
He denied trying to get Customs 'called off', saying he accepted that where evidence of export breaches existed they had to investigate.
'They had gone about some of their previous raids in a rather gung-ho way. There had been a fair amount of press reports that seemed to have got under the skin of the Iraqis,' he said.
The aim was to persuade Customs to adopt a lower media profile and delay further raids. 'There was more than one way to kill a cat,' he said.
The DTI's trade promotion policy was left in disarray in 1990 following the seizure by Customs of parts for the Iraqi supergun and alleged nuclear triggers, and the execution in Iraq of the Observer journalist Farzad Bazoft, he said.
Baghdad complained to the British ambassador about its 'extreme degree of concern' at what they believed was a deliberate campaign against the country. Mr Petter said Baghdad responded by mounting a partial embargo on British goods putting at risk pounds 2bn worth of export credits and a further pounds 140m in outstanding repayments.
He had felt 'beleaguered' with complaints from businessmen hit by the embargo, demanding to know what the Government was doing.
When he tried to enlist support from the Foreign Office he was told that any interference would not be 'appropriate'.
When he raised the issue himself, at a meeting with Cabinet officials to discuss government guidelines on defence-related exports to Iran and Iraq, he was rebuked.
A record of the meeting described his suggestion that Customs be 'less assiduous' in their inquiries as 'astonishing'.
Mr Petter admitted he had been wrong. He said that he had not understood the constitutional independence of Customs.
In 1987, he had warned of the damage to British commercial and political interests if Iran defeated Iraq, reflecting the view of his department and the Export Credits Guarantee Department, he said.
'It is using one's intelligence about the size of UK plc's stake in the market. Having gone to all that trouble, it was not in HMG's interest to see Iraq go down the tube.'
The inquiry continues tomorrow.Reuse content