Indonesia’s Halal Law Threatens to Trigger Trade Disputes

The Joko Widodo government has quietly moderated the controversial 2014 Halal Law which would have given a single agency the power to disrupt Indonesia’s trading relationships with edicts on the halal content of everything from pharmaceuticals to electronics.

The amendment follows a change in the ultra-conservative leadership of the Indonesian Ulema Council (MUI), which oversees halal certification, and intervention from key cabinet ministers worried about the law’s impact on the economy and trade.

The main concern among foreign business leaders, however, continues to center around the government-to-government agreement requirement for foreign halal certification, materials classification, and halal assurance implementation in general.

Indonesia informed the World Trade Organization (WTO) last November of the new legal framework for mandatory halal certification for imported food and beverages, cosmetics, medicines, chemicals, and biological products.

But foreign officials warn the stipulation that non-halal products must carry either the sign of a large pig or a vivid red stamp – and can only be moved by non-halal transport – could see it designated as a non-tariff trade barrier.

“We still have to see how strict they are going to be,” says one business source who has tracked the progress of the new law for the past seven years. “What about exemptions when examinations are made on a product-by-product basis?”

Diplomats have been careful in their approach to the issue, aware of the religious sensitivities involved and, for the Americans at least, worried about alienating a country trying to steer a middle course in Washington’s growing rivalry with China.

The Halal Law was among a slew of statutes in the landmark 2020 Job Creation Omnibus legislation rolled out by Widodo to amend a knot of articles and regulations that hinder Indonesia’s drive to attract more foreign investment.

The key change in the newly-amended law was to narrow down the scope of affected products, which originally included almost everything from electronic appliances and similar consumer items to clothing apparel and even car-seat covers.

“There was a lot of worry from industry,” says Indonesian American Chamber of Commerce (AmCham) managing director Lin Neumann. “The law was so sweeping (in its original form) that a lot of people thought it would kill the economy.”

Much of the opposition came from chief economic minister Airlangga Hartarto, then-trade minister Tom Lembong and Finance Minister Sri Mulyani Indrawati, joined by the Indonesian Chamber of Commerce and Industry (Kadin) and the Indonesian Employers Association (Apkindo).

Initially, negotiators found it was difficult to have a conversation on the subject with conservative Ministry of Religious Affairs officials, who had built a vast bureaucracy around the newly-created Halal Products Certification Agency (BPJPH).

In fact, before the law was changed, the idea was for BPJPH staffers to fan out around the world on expensive inspection trips that would have taken them to most – if not all – companies supplying goods to the Indonesian market.