The security guard working for Showsec, aged 18 at the time of the terror attack told police in a statement read to the inquiry sitting in Manchester: "I felt unsure about what to do.
"It's very difficult to define a terrorist. For all I knew he might well be an innocent Asian male.
"I did not want people to think I am stereotyping him because of his race.
"I was scared of being wrong and being branded a racist if I got it wrong and would have got into trouble.
"It made me hesitant.
"I wanted to get it right and not mess it up by over-reacting or judging someone by their race."
Paul Greaney QC, counsel to the inquiry, said: "If you were to approach him and he was some innocent kid, people might think you were racist?"
Mr Lawler replied: "Yes."
The Manchester-born bomber, Abedi, 22, dressed all in black and carrying a large, bulky rucksack, was spotted and reported to security at 10.15pm on May 22 2017.