Labour subsequently changed the law to extend the ban. When National came to power, then-Agriculture Minister David Carter began talks on resuming exports, but that position changed and in 2010 the ban was rolled-over.
Mr McCully has said that National inherited a problem in that Mr Al Khalaf's displeasure was a major obstacle to a regional free trade agreement, as well as a legal risk.
As a result, he agreed to a deal which saw a $4 million facilitation payment made to Mr Al Khalaf and a further $6.5 million spent to create a farm on his land.
The yet-to-be-completed farm will act as a demonstration base for Kiwi agribusiness, but has had a difficult start, with 75 per cent of lambs born to ewes air-freighted from New Zealand last year dying.
The Government initially said a sand storm could be to blame, before Brownrigg Agriculture - a Hawkes Bay company that advocated on behalf of Mr Al Khalaf and later won a tender to set-up the farm - pointed to heavy rain and illnesses.
Labour's export growth and trade spokesman David Parker has now released a 2011 letter from Brownrigg to Mr McCully, written on behalf of Mr Al Khalaf and his business partner George Assaf.
Mr Al Khalaf has been working with the Government for the past seven years towards a resumption of the sheep trade, the letter states, but this has stalled.
"He feels that if this is the case then he would have no option but to seek commercial redress, as indeed has been suggested by your Government as a last resort option for him."
Former National Party president Michelle Boag is copied in, as she "has been in contact with both of us in her capacity as director of Laurium Asset Management, regarding her interest in seeing the live sheep export issue resolved and free trade with the Gulf States advanced."
Ms Boag said the letter was incorrect and she has never been a director of Laurium, nor has she been contracted by the company or paid any money from it.
She said Graeme Leversha, a director of the company, approached her and asked her to meet with Mr Assaf. When Mr McCully agreed hear from Mr Assaf, Ms Boag said she put them in touch, and that was where her involvement ended.
"I met with George, and I did this purely as a personal favour...there was an issue - he claimed the Government wasn't engaging with him. As you know, I'm a supporter of the Government, and I thought if it was something the Government needed to look at I would see what I could do," Ms Boag said.
"I met with George, I was not paid to meet with George, all I said was, 'I will try and help you, what would you like?' He said, 'I would like to meet with the Minister'."
Ms Boag said she later distanced herself from Laurium after becoming uncomfortable with how their relationship was being promoted. Mr Leversha declined to comment.
Mr Parker said there were inconsistencies in explanations for Ms Boag's involvement, including Mr McCully saying it was as a member of the NZ Middle East Business Council.
That could not be correct as Ms Boag was not appointed to the council until 2012, Mr Parker said.
