1. Introduction

The Halal Products Law,[1] which entered into effect on 17 October 2014, envisages the establishment of a mandatory Halal certification scheme for prescribed products. However, in accordance with Indonesia’s system of hierarchical legislation, the Halal Products Law requires the issuance of various ancillary or implementing regulations so that its provisions may be put into effect.

The Halal Products Law mandates the establishment of a new body, the Halal Assurance Agency (Badan Penyelenggara Jaminan Produk Halal / “BPJPH”) to administer the mandatory Halal certification scheme. Following the issuance of Presidential Regulation No. 83 of 2015 and Minister of Religious Affairs Regulation No. 42/2016, the BPJPH was finally established on 11 October 2017.

However, despite the Halal Products Law’s imperative that all of the necessary ancillary regulations must be issued within not more than two years subsequent to the legislation’s enactment, regulations governing the day-to-day operations of the BPJPH have yet to be issued.

Time is now of the essence as, according to Article 67 Halal Products Law, full mandatory Halal certification for all prescribed products must commence five years counting from the date of the legislation’s promulgation, meaning that the scheme must be up and running by not later than 17 October 2019.

A Draft Government Regulation (“DGR”) that will allow the BPJPH to commence certification operations has now been finalized and appears likely to be issued in the near future.

In this ABNR Legal Update we will discuss the latest developments as regards Halal certification, briefly revisit the key features of the Halal certification scheme envisaged by the Halal Products Law, and preview the requirements set out in the DGR.

It should be noted that given the wide scope of the Halal Products Law and the technical complexity of the DGR, for reasons of brevity we are only able to provide a broad outline of their key provisions in this ABNR Legal Update.

2. Halal Certification: Current Situation

The issue of Halal certification is nothing new in Indonesia as it was already provided for prior to the Halal Products Law by Government Regulation No. 69 of 1999, and Minister of Religious Affairs Directives No. No. 518 of 2001 and No. 519 of 2001, which vested certification authority in the Indonesia Ulama Council (“MUI”)’s Food, Medicines and Cosmetics Assessment Agency (Lembaga Pengkajian Pangan, Obat-obatan dan Kosmetika MUI / “LPPOM”).

However, under the earlier arrangements, Halal certification was voluntary rather than mandatory. By contrast, it is mandatory for all prescribed products under the Halal Products Law.

The legislation requires the MUI’s responsibilities for Halal certification to be transferred to the BPJPH. However, as explained in Section 1 above, the BPJPH has yet to commence certification operations due to the absence of implementing regulations. Consequently, under the Halal Products Law’s transitional provisions, the MUI continues to conduct voluntary Halal certification in practice.

3. Scope of Halal Products Law: Definitions

The following definitions of key concepts related to Halal certification are provided by the Halal Products Law (and are reiterated in the DGR):

A “Halal Product” is a Product that has been declared Halal in accordance with Shariah rules / principles.

A “Product” is any good and / or service that is related to foodstuffs, beverages, medicines, cosmetics, chemical products, biological products, genetically engineered products, and goods that are worn, used or utilized by the public. According to the DGR, “Products that are worn” consist of clothing, headgear, and accessories; “Products that are used” consist of household requisites and equipment; Muslim religious requisites, food and beverage packaging, office requisites and writing utensils; and “Products that are utilized” consist of medical equipment.

A “Material” is any element that is that is used in the making or production of a Product. Materials consist of raw materials, processed materials, operational materials and auxiliary materials. Further, materials may be of animal, plant, or microbial origin, or may be produced by a chemical, biological or genetic-engineering process.

An “Undertaking” is any individual or enterprise, whether or not of legal-entity form, that undertakes commercial operations in Indonesia.

A “Halal Production Process” is a series of activities designed to provide assurance that a product is Halal, covering the product’s materials, processing, storage, packaging, distribution, display and sale.

A “Halal Certificate” or “Halal Certification” recognizes the Halal compliance of a Product and is issued by the BPJPH on the basis of a written fatwa issued by the MUI.

A “Halal Label” is a sign affixed to a Product that attests to its Halal compliance.

4. Summary of Mandatory Certification Scheme under Halal Products Law and DGR

The essence of the scheme established by the Halal Products Law, as further elaborated by the DGR, is as follows:

All Products that enter, circulate or are traded in Indonesia must have Halal Certification and such certification must be demonstrated by a Halal Label affixed to every such Product. However, this does not mean that all Products must be Halal as Products that are produced using non-Halal materials are exempt from the Halal Certification requirement provided they are labelled “non-Halal.”

Halal Certification may only be accorded to a Product that is produced using Halal Materials and a Halal Production Process.

Following submission by an Undertaking of an application for Halal Certification to the BPJPH, a physical audit of Halal compliance is conducted at the applicant’s production facility by a Halal auditor (Auditor Halal) employed by a Halal audit agency (Lembaga Pemeriksa Halal). The results of the audit are then submitted by the Halal audit agency to the BPJPH and, upon verification by the BPJPH, are forwarded to the MUI for confirmation of Halal compliance through the issuance of a Halal fatwa. Should all the requirements be satisfied, the fatwa should be issued within 30 days of receipt of the verification results from the BPJPH. The BPJPH must then issue a Halal Certificate for the product within seven days counting from the date of receipt of the fatwa from the MUI.

An Undertaking that has been issued with a Halal Certificate for a Product must have one or more Halal supervisors (Penyelia Halal) to oversee Halal compliance.

5. Rolling Out of Halal Certification Scheme

As envisaged by Article 67 Halal Products Law, mandatory Halal Certification will be rolled out gradually.

In this regard, the DGR explains that Halal Certification applies to Products that consist of goods and/or services in the form of:

Goods:

a. foodstuffs; b. beverages; c. medicines; d. cosmetics; e. chemical products; f. biological products; g. genetically engineered products; h. products that are worn, used or utilized (as explained in Section 3 above).

Services:

a. Slaughtering; b. Processing; c. Storage; d. Packaging; e. Distribution; f. Display; and Selling.

According to the DGR, mandatory Halal Certification will be rolled out on a gradual basis in respect of the above Products having regard to: (a) existing Halal Certification requirements; (b) Halal Certification prior to the coming into effect of the Halal Products Law; (c) Products that constitute primary needs and are consumed on a large scale; (d) Products that are particularly sensitive from the Halal perspective; (e) preparedness of Undertakings for mandatory Halal Certification; (f) and readiness/availability of Halal assurance infrastructure.

The DGR states that priority will be given to the Halal Certification of food and beverage Products, to be followed by other Products, as identified by a Minister of Religious Affairs Regulation to be issued in consultation with other relevant ministries/agencies.

6. Requirements for Production Locations, Places, and Equipment under DGR

Article 21 Halal Products Law provides that “locations, places and equipment” used as part of a Halal Production Process must be separate from those used for non-Halal Products, and be kept free of unclean elements (najis) and non-Halal Products.

The DGR explains that “locations” refers to locations used for slaughtering, while “places and equipment” means places and equipment that are used for slaughtering, processing, storage, packaging, distribution, display and selling.

6.1 Slaughtering Facilities

Locations, places and equipment used for the slaughtering of Halal livestock must be separate from those used for slaughtering non-Halal livestock

A facility for slaughtering and cutting/trimming in the case of Halal livestock must be separated from a facility used for these processes in the case of non-Halal livestock by a wall of at least three meters in height. Further, a non-Halal facility may not be located in a flood-prone area, must not give rise to smoke, smells, dust or other contaminants, must have separate liquid and solid-waste disposal systems; must be constructed in such a manner as to prevent contamination; and must have a separate entrance for non-Halal livestock and a separate exit for non-Halal carcasses and meat.

A slaughtering facility must also have separate holding pens for non-Halal and Halal livestock.

Separate equipment must be used for slaughtering non-Halal and Halal livestock, and separate facilities must be provided for the cleaning, maintenance, and storage of such equipment.

6.2 Processing Facilities and Equipment

Separate places must be provided for the storage, weighing, mixing, forming or molding/shaping; and cooking of non-Halal and Halal Materials.

Separate processing equipment must be provided for non-Halal and Halal Materials, together with separate facilities for cleaning, maintenance, and storage of such equipment.

6.3 Storage Facilities and Equipment

Separate places must be provided for the receipt of non-Halal and Halal Materials and processed Products, and for the storage of Materials and Products.

Separate storage-related equipment must also be provided, together with separate facilities for cleaning, maintenance, and storage of such equipment.

6.4 Product Packaging

Packaging materials for non-Halal and Halal Products must be kept apart and separate packaging facilities provided.

Separate packaging equipment must also be provided, together with separate facilities for cleaning, maintenance, and storage of such equipment.

6.5 Product Distribution

Separate lifting equipment and means of transportation must be provided for non-Halal and Halal Products, together with separate facilities for cleaning, maintenance, and storage of such equipment and means of transportation.

6.6 Product Display

Separate display facilities and processes must be provided for Halal and non-Halal Products. Equipment must not be used interchangeably and separate facilities must be provided for cleaning, maintenance, and storage of such equipment.

6.7 Product Sale

Separate selling facilities and processes must be provided for non-Halal and Halal Products. Equipment must not be used interchangeably and separate facilities must be provided for cleaning, maintenance, and storage of such equipment.

7. Fresh Animal Products

The DGR stresses that the distribution, display and selling processes for fresh Products originating from non-Halal livestock must in all circumstances be kept separate from the distribution, display and selling processes for fresh Products originating from Halal livestock.

8. Combined Distribution of non-Halal and Halal Products

The DGR permits processed non-Halal Products of animal or other origin to be distributed together with processed Halal Products of animal or other origin provided it is guaranteed that no cross-contamination will occur and that the means of distribution is not also used for the distribution of fresh non-Halal Products of animal origin. It is sufficient for this to be warranted by a declaration by the producer or distributor.

The display and selling of fresh and processed non-Halal Products of both animal and other origin must be conducted separately from the

display and selling of fresh and processed Halal Products of animal and other origin.

9. Pocedures for Registering a Foreign Halal Certificate

As mandated by the Halal Products Law, the DGR provides that an Indonesian Halal Certificate is not required in the case of a product that is certified as Halal by a foreign Halal certification agency that has a mutual-recognition agreement with the BPJPH. However, such certificate must be registered with the BPJPH before the product may be circulated in Indonesia.

To register a foreign Halal certificate, the Undertaking should (a) submit an electronic or written application to the BPJPH, accompanied by a copy of the foreign Halal certificate that has been legalized by the relevant overseas Indonesian diplomatic mission, (b) provide a list of the goods that will be imported into Indonesia (giving their harmonized-system code numbers), and (c) furnish a declaration attesting to the veracity of the information provided.

Upon registration, the BPJPH will issue a registration number, which must be affixed to the Product packaging or to a particular part of or place on the Product. Further procedures governing this are to be established by way of Minister of Religious Affairs Regulation.

In a case where a Product has Halal Certification from a foreign certification agency that does not have a mutual-recognition agreement with the BPJPH, the normal Indonesian Halal Certification rules will apply.

10. Transitional Provisions

Until such time as the necessary ancillary regulations have been issued, the existing Halal Certification arrangements will remain in effect. Thus, the MUI continues to be responsible for Halal Certification until the BPJPH commences certification operations. Further, all Halal Certificates issued by the MUI prior to the entry into effect of the DGR remain valid until their expiry.

In addition, all ancillary regulations related to Halal Certification that were issued prior to the coming into effect of the DGR will remain in force provided that they do not conflict with the provisions of the DGR.

The DGR also provides that medicines, biological products and health equipment that are made from Materials that are non-Halal and/or are produced in a non-Halal manner may continue to circulate, provided that information on this is affixed to the Product, until such time as alternative Halal materials or production processes become available. Further rules on this are to be issued by way of Presidential Regulation.

11. ABNR Commentary

The practical implementation of mandatory Halal Certification will clearly be a monumental task. According to the MUI’s LPPOM, there are currently some 3.6 million Undertakings that will need to be audited under the mandatory scheme, whereas to date only around 14,600 Undertakings have been issued with Halal Certificates by the LPPOM. The MUI says that to audit the uncertified Undertakings would require around 24,802 Halal auditors, while the MUI currently only has 1,190. Thus, it should come as no surprise that both the Halal Products Law and the DGR envisage the gradual rolling out of the scheme.

In addition to certification-capacity issues, concerns have been voiced about certain aspects of the Halal Products Law as it appears to ignore reality in the case of particular industries. For example, according to the Ministry of Health, some 95 percent of the materials used in the production of medicines and vaccines in Indonesia are imported. It may be assumed that many of these materials do not satisfy the requirements of the Halal Products Law. Should the legislation be strictly enforced, this could lead to shortages of medicines and significant price increases, as well as public health issues related to people’s unwillingness to accept medicines, vaccines, etc., whose Halal compliance cannot be 100 percent guaranteed.

The Ministry of Industry has voiced similar concerns, along with fears as to the adverse impact a rigorous implementation of the Halal Products Law could have on Indonesia’s investment climate and ease-of-doing-business ranking.

On the other hand, Government officials regularly stress that Indonesia has much to gain economically from mandatory Halal Certification as part of the country’s drive to become a global hub for Halal Products. According to Bank Indonesia, the value of the country’s Shariah economy is set to grow to USD 427 billion by 2022, with Halal food and beverages accounting for more than 50 percent of this.

The Government also has a pronounced economic interest in Halal Certification: a recent media report quoted Sukoso, the head of the BPJPH, as saying that issuing Halal Certificates could net the Government some USD 1.6 billion in new revenue annually. He also said that the BPJPH expects to issue up to 100,000 Halal Certificates in 2020, assuming of course that the necessary implementing regulations have been issued. Meanwhile, the MUI reports that the number of Halal Certificates issued in 2018 more than doubled to 17,398 from the previous year as companies rushed to label their products ahead of the full implementation of the Halal Products Law.