SENIOR British government ministers and civil servants are accused of encouraging arms companies to sell equipment to Iraq that was later used against British forces in the Gulf war.
The scandal is the latest to rock the government of Prime Minister John Major, already suffering the lowest popularity rating of any British premier this century.
Amid charges that the government broke its own arms sales guidelines and then attempted a cover-up, Mr. Major on Nov. 10 ordered a senior judge to hold a top-level inquiry into the affair.
British newspapers have dubbed the affair Major's "Iraqgate." Conservative backbenchers, normally loyal to Major, were among angry members of Parliament who demanded that the prime minister order an immediate inquiry.
Major has become engulfed in the new crisis as the result of a court case brought last month against three industrialists accused of selling arms-making equipment to Iraq up to six days before President Saddam Hussein invaded Kuwait.
The equipment - machine tools used in the manufacture of munitions, including rockets - was exported to Iraq by Matrix Churchill, a British firm secretly taken over by the Iraqi government in the late 1980's.
During the trial, Alan Clark, a former trade minister, admitted that, while a member of the Thatcher government, he had encouraged Matrix Churchill to sell the equipment to Iraq in violation of arms sales guidelines established in 1985. The case was dropped Monday following Mr. Clark's testimony.
According to the Nov. 11 issue of the Financial Times of London, documents obtained by the Times and earlier described in testimony before the US Congress showed that outgoing Secretary of State James Baker III had approved an Ohio affiliate of Matrix Churchill to do business with Iraq. The report added that the State Department had US intelligence reports three months earlier describing Matrix Churchill as a company used by Iraq to procure weapons.
The British Labour Party has also faulted Major for allowing the case to proceed when his own ministers knew that the men had acted on the basis of government support.
At least four ministers in the Major administration will be required to explain their actions. If they do not cooperate with the inquiry, the prime minister told parliament Nov. 10, they can expect to lose their jobs.
Among those likely to be called before the inquiry are Lady Margaret Thatcher, who was prime minister at the time the arms sales were made, and Lord Geoffrey Howe, the former deputy prime minister and foreign secretary, who established the arms sales guidelines.
Lady Thatcher's son, Mark, may also be called to testify. It is alleged that in the late 1980's he introduced Gerald Bull, designer of the Iraqi supergun, to members of Baghdad's defense establishment. British firms were involved in the supply of supergun components to Iraq.
Four of Major's ministers are involved because last month they signed orders to prevent the court from gaining access to official documents that would have let the accused men off the hook. The judge in the case overruled the ministers, and the information lead to the government dropping the case.
The four ministers are: Trade Secretary Michael Heseltine, Defense Secretary Malcolm Rifkind, Home Secretary Kenneth Clarke, and Minister for European Affairs Tristan Garel-Jones.
Robin Cook, Labour's shadow trade secretary, said: "This is a political scandal, not a legal failure. The deception went right to the top."
For Major, who has been battling to restore his credibility after a series of political setbacks, the scandal appears particularly dangerous.
He has presided over Britain's forced devaluation of the pound, has failed so far to reverse a deep recession, and is still in a dispute with members of his own party over ratification of the Maastricht accords on European unity.
Anthony Sampson, author of the best-selling book, "The Arms Bazaar", said the Matrix Churchill case "shows a deeper dishonesty and irresponsibility than is normal, even in the arms trade."
The Labour Party, which failed last week in a bid to defeat Major on European policy, has moved swiftly to capitalize on the prime minister's latest embarrassment.
On Nov. 11 it tabled a House of Commons motion quoting statements by Major and Lady Thatcher denying that weapons had been supplied to Iraq.
The motion claimed that while the prime minister and his predecessor publicly supported a ban on exports to Iraq, their own ministers knew that the guidelines were being breached.
Also on Nov. 11, Labour leader John Smith wrote to Major, calling for a tougher type of inquiry. He said it should be a full-scale public tribunal with ministers obliged to give evidence under oath.