Lord Trefgarne - who with William Waldegrave and Alan Clark, was responsible for the 1988 decision - denied it amounted to a change of policy and did not, therefore, require MPs to be informed.
The former Minister for Defence Procurement and trade minister insisted the guidelines were not changed but underwent a flexible 'reinterpretation'. He claimed there was no obligation to tell the House of Commons even, if the guidelines had been changed.
The main influence on any announcement of policy was 90 per cent 'pragmatic', he said. They should be made in 'circumstances which suit the government of the day'. He added: 'Of course, you must not tell Parliament an untruth or mislead them, but you don't tell them everything.'
He said ministers expected the more relaxed 'application' would mean more exports to Iraq, including machine tools manufactured by Matrix Churchill.
Lord Trefgarne's evidence contradicted that of his former colleague Alan Clark, who previously told the inquiry MPs should have been told but were not because ministers feared an outcry over Saddam Hussein's gas attacks on Kurds.
Lord Trefgarne said a public announcement was neither 'necessary nor desirable' but said ministers were more concerned about the reaction of Washington, Saudi Arabia and other Middle Eastern countries than any UK outcry.
His evidence opened with a strong defence of ministers' conduct. 'We have been criticised for not announcing this additional flexibility to Parliament. But . . . there was no need to do so.'
He denied attempting to secretly 'doctor' the guidelines for improper purposes and defended officials who advised him. He also denied knowledge of any involvement of Lady Thatcher in a decision to permit the export of machine tools to Baghdad despite intelligence reports that they were destined for weapons factories. The exports breached the guidelines but were allowed, to protect intelligence sources.
Lord Trefgarne claimed Customs told him Sir Patrick Mayhew - the former Attorney General and now Secretary of State for Northern Ireland - personally authorised the prosecution of three businessmen from Matrix Churchill. It was the collapse of their trial which led to the inquiry.