Malaysia in talks to settle trade row: Diplomat foresees amicable solution to ban, write Colin Brown and Andrew Gliniecki

THE FIRST signal that the dispute over the Malaysian government's ban on trade with British companies might be a step closer to resolution was given last night after a senior Malaysian diplomat spoke of behind-the-scenes discussions aimed at defusing the row.

The Malaysian government barred British firms from receiving contracts a week ago after a Sunday Times article suggested that a British company had offered bribes to Malaysian ministers in return for business. Last night, Abu Kamaradin, the Malaysian High Commissioner in London, told Sky News: 'We are talking to diplomatic channels and we have excellent contacts because of the good relations over the years. Therefore we are quite confident that this matter can be resolved amicably.'

A softening of tone was reflected in a letter published in the Times today from the press secretary to Anwar Ibrahim, the Malaysian Deputy Prime Minister, stating his government is not seeking an apology from the Sunday Times but 'factual reporting'. It had asked for the article to be withdrawn.

The cross-party commons select committee investigating the aid- for-arms affair will decide this week whether to call Baroness Thatcher to give evidence. The trail in the investigation into the linking of arms and aid, in breach of government policy, has led to Downing Street - according to members of the Select Committee on Foreign Affairs. The committee will consider calling Lady Thatcher and her former private secretary, Sir Charles Powell, after taking evidence from Lord Younger, the former Secretary of State for Defence, and Sir Nicholas Spreckley, High Commissioner in Malaysia in 1988 when Lord Younger signed a deal in which defence and aid became entangled.

Sir Tim Lankester, the Overseas Development Administration accounting officer, who opposed the Pergau dam project on which pounds 234m in aid was given by the British government, said the decision to go ahead was due in part to a commitment given by Lady Thatcher in talks with Mahathir Mohamed, the Malaysian Prime Minister.

Michael Jopling, a Tory member of the committee and the government chief whip in the Thatcher administration, said during evidence by Baroness Chalker, minister for overseas development, that it looked like Margaret Thatcher had rushed through the inspection of Pergau in two days to give Dr Mahathir the assurance of aid when she met him at Downing Street.

Lady Chalker said: 'Mr Jopling, your statements may be right. I have no means of knowing . . .' That reply put Lady Thatcher in the firing line. Tom Clarke, Labour's spokesman on overseas development, said: 'They have got to call her now. It is moving faster in that direction.' The committee wants to know whether there were reports to Downing Street from the High Commission before the arms and aid package was agreed.

The committee has also received a memorandum detailing how five companies received pounds 358m between 1978 and 1990 in aid and won 50 contracts worth pounds 1.4bn (see table). The memorandum, by Professor John Toye, an adviser to Lady Chalker, shows how more aid and trade provision started under Labour, was switched under Lady Thatcher to middle income countries. About 29 per cent of ATP went to middle income countries under Labour, but that rose to 43.1 per cent in 1990.

----------------------------------------------------------------- FIRMS RECEIVING THE MOST ATP, (1978-90) ----------------------------------------------------------------- Company ATP Contract Contracts (millions pounds) (millions pounds) (no) GEC 129.8 422.8 20 NEI 46.9 344.6 4 Davy McKee 58.7 284.5 5 Balfour Beatty 63.4 221.1 20 Biwater 59.5 194.0 1 Total 358.3 1467.0 50 ----------------------------------------------------------------- Source: Toye memorandum to Foreign Affairs Select Committee -----------------------------------------------------------------