Indonesia is to review protectionist regulation that forces foreign pharmaceutical companies to establish manufacturing facilities if they want to distribute and sell drugs in the country.
Some foreign diplomats believe proposals to judge companies on a case-by-case basis could violate World Trade Organisation rules. It is unclear how the proposed new rules would be implemented.
The climbdown comes amid mounting opposition to a raft of measures adopted by Indonesia last year to mitigate the effects of the global economic crisis.
Several foreign ambassadors openly criticised one decree in particular relating to imports in the electronics, footwear, toys, clothes and food sectors at a meeting last week with Mari Pangestu, trade minister, and senior officials.
Lucky Slamet, the head of Indonesia's food and drug supervision agency, told the Financial Times after the meeting that the authorities would be flexible in relation to pharma companies.
"This will be on a case-by-case basis," she said. "Everything will be balanced. I believe [the decree] won't [be enforced] 100 per cent, only to the extent that we want to increase the capacity of domestic industry."
Some 80 per cent of Indonesia's drug needs are met by local companies. But more than 30 international pharmaceutical groups, half of them European, distribute drugs in the world's fourth most populous country.
Hans-Josef Schill, chief executive of Bayer Indonesia and chairman of the European chamber of commerce in Indonesia, welcomed the review, saying it would be "completely unrealistic" to expect pharma companies to manufacture in every country where they operate.
Martin Hatfull, the British ambassador to Indonesia, told last week's meeting: "Pharmaceutical companies are very concerned about the potential vulnerability of decisions they would like to make on a commercial basis that may be impaired by the [pharmaceutical] regulation." He also cited WTO compatibility issues in the decree imposing restrictions on imports in five sectors.
Pharma industry executives have expressed concern about rising nationalist demands relating to manufacturing and investment in different countries.
Canadian, Japanese, South Korean, US and European Commission diplomats are among those who have suggested that the Indonesian measures could be seen as non-trade tariff barriers.
Mrs Pangestu said Indonesia was not violating WTO regulations and that the measures were "not meant to restrict imports or increase barriers to trade".