William Patey, a Foreign Office civil servant, told Lord Justice Scott that although the exports were a breach of guidelines, his report to David Mellor, when he was a Foreign Office minister in 1988, did not make that clear. 'It wasn't the issue I was focusing on,' he said.
The inquiry is investigating claims of ministerial and Civil Service collusion in defence exports which breached official guidelines and export control legislation.
Mr Patey chaired the Inter Departmental Committee, which decided on export licences for defence equipment and dual-use goods to Iraq and Iran, from October 1987 to February 1988.
He said the committee had already approved the export of machine tools 'on the nod' before receiving an MI6 report warning that Iraq was setting up its own arms manufacturing industry. The report said two Iraqi firms were buying machine tools from British companies to make munitions.
Although the warning was received in November 1987, it was not raised until an emergency session in January 1988. Mr Patey told the inquiry that it was an 'oversight' it was not raised sooner. He said the Middle East desk had a heavy workload dealing with British hostages in Iraq and Iran, and he took a two- week Christmas break.
Mr Patey denied that his imminent posting to Australia caused the delay. He said he was a 'caretaker' continuing policy rather than shaping it. It was an operational matter which he felt 'duty bound to act upon as quickly as possible given the other constraints on our time'. When it was discussed, officials were told three British firms were already 'heavily committed' to the orders but not all the machine tools had been sent and some were literally 'on their way to the docks'.
The Department of Trade and Industry informed IDC officials that revoking the licences and halting the exports would have 'catastrophic consequences' for the companies.
Despite agreeing with inquiry counsel that some of the Ministry of Defence and Department of Trade and Industry arguments supporting the recommendations were specious, he repeated similar arguments to David Mellor.
His report argued that blocked British exports would leave foreign firms free to supply equipment despite earlier telling the inquiry that UK policy did not take this into account.
The view of defence experts was the most important in deciding whether exports 'significantly enhanced' Iraq's military capability. But he admitted the trade department and Foreign Office also used military technical arguments to support or object to exports despite having little expertise.
The inquiry continues tomorrow.