It was also revealed that Australia's trade commissioner in Washington tried to alert Trade Minister Mark Vaile around the same time that the wheat exporter could be paying kickbacks to the since-ousted Iraqi dictator.
Mr Downer admitted he saw cables in which his department urged "high-level inquiries" about a complaint from Canada that Iraq was demanding kickbacks from the Canadian Wheat Board and that the Australian Wheat Board was already making the payments.
The Cole inquiry, which is probing A$300 million in kickbacks allegedly paid to Saddam Hussein's regime by AWB on Tuesday revealed more diplomatic cables which warned the Howard government that AWB may have been making payments which breached United Nations sanctions.
The federal government has consistently denied any knowledge of kickbacks before last October.
The Canadians had complained to the UN, which began asking questions about AWB's deals.
When the complaint went to the Department of Foreign Affairs and Trade, DFAT was assured by AWB that it had done nothing wrong.
But Mr Downer told parliament he was happy with the Department of Foreign Affairs and Trade's response to the allegations.
Prime Minister John Howard also defended his government's response, saying it had acted properly on a complaint from a competitor.
"The United Nations, which had raised the complaint in the first place at the instance of the Canadians, indicated that this had removed any grounds for misconception," Mr Howard told parliament.
"That was the response. In those circumstances ... I rest on my claim that we responded correctly."
After Canada's allegations, the UN's Office of Iraq Program asked for additional contracts from AWB - documents which were obtained by DFAT and passed on to the UN, Mr Downer said.
The UN, he said, then ruled that the allegations were "unfounded".
"AWB was somewhat reluctant, if I may say so, to provide that material but they did provide it," Mr Downer said.
"That material was then given to the UN investigators ... and they gave AWB Ltd a clean bill of health.
"So you have to look at the totality of the documentation and the totality of the story."
The Canadian complaint, according to evidence before the Cole inquiry, was the Howard government's first warning about AWB's Iraq deals and came only a few months after AWB began paying kickbacks.
The cables were written in January 2000 by diplomat Bronte Moules, who warned the government that Iraq was taking illegal wheat kickbacks of US$14 per tonne, through Jordan to a company owned by Saddam Hussein's son.
Meanwhile a newspaper poll shows that 70 percent of those polls do not believe the government's claims it was not aware of the alleged kickbacks.