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A Canadian manufacturer was preparing to ship military equipment to Indonesia a year ago even as brutal attacks by Indonesian troops drove thousands in occupied East Timor from their homes, an internal Foreign Affairs department memorandum indicates.

The memo suggests Ottawa was reluctant to cancel an export permit for the shipment because officials feared the company would sue the federal government over its handling of military sales.

The memo, dated Sept. 14, 1999, was released with extensive deletions under the Access to Information Act. It does not identify the company or the type of military equipment slated for export.

But it suggests that the shipment accounted for most of the $119.3-million in permits for sales to Indonesia issued by Ottawa in the two years before last September.

"The bulk of the authorized dollar amount covers [deleted]" the memo says. "The product is almost ready to ship and we can expect significant objection by the company, possibly a legal suit, if the permit were to be revoked."

The memo, a briefing note from department official Peter Oldham for his superiors, was obtained through an access request by George Duimovich, an activist with the East Timor Alert Network.

It was prepared a day after Foreign Affairs Minister Lloyd Axworthy banned future military sales to Indonesia -- a ban that did not cover sales for which permits had already been issued.

At the time, officials said only $5,000 in actual military sales had been registered during the previous two years. (Permits are sometimes issued for deals that are later scrapped.)

"This points to the very serious possibility that Canada was allowing the shipment of military goods to Indonesia at the worst possible time," ETAN spokesperson Kerry Pither said.

Foreign Affairs Department spokeswoman Marie-Christine Lilkoff said yesterday that no new permits for sales to Indonesia have been issued and there are no valid permits outstanding.

After the ban was imposed, Mr. Axworthy told the House of Commons foreign-affairs committee there were three outstanding permits, issued before the ban took effect, for "simulators and aircraft parts."

Ms. Pither said outrage over human-rights abuses in East Timor should have outweighed concerns about a lawsuit.

"If it had come out at that time that the Canadian government was more concerned about being sued by a company than it was about the human cost of supplying equipment . . . I think Canadians would have been horrified," she said.

Today, on the first anniversary of the independence vote that touched off a wave of army killings in East Timor, human-rights groups and the Canadian Labour Congress are calling on the federal government to step up pressure on Indonesia to prosecute killers.

"Despite the international outcry against the killings, torture and forced expulsions, not a single perpetrator has been brought to justice," Alex Neve, Canadian secretary-general for Amnesty International, said in a press release.

Under pressure from human-rights and disarmament activists, Mr. Axworthy tightened export-permit procedures in 1997 in an attempt to ensure that military exports are not used to repress civilians.

But permits continued for sales to Indonesia. Officials said they were for "non-offensive" equipment and permits were not issued for equipment that might be used against civilians.

Government reports, which do not identify the companies involved, say sales included thermal-imaging equipment, fire-control radar and military aircraft and components.

The memo from Mr. Oldham, deputy director of regional security and peacekeeping in the foreign-affairs department, says permits were issued for sales of navigation systems, aircraft engines and training simulators.

After East Timorese opted overwhelmingly for independence in the United Nations-supervised plebiscite, pro-Jakarta militias backed by the army torched houses and looted the UN compound in Dili, the territory's capital.

Mr. Oldham's memo lists "talking points" for dealing with questions. It warns that the department will be slammed by activists for failing to ban exports already in the pipeline.

"Because of the high value of permit authorizations and the manner in which this is tracked by . . . ETAN, we can expect criticism of the decisions and calls to reverse those already made," it says.