The Islamic perspective on genetically modified foods, much like that of other religions, is complex and goes deeper than simply a determination of whether a certain food is halal or not (although that is certainly part of it).
Whether Islam approves or disapproves of genetically modified foods does not have a straightforward answer and many theologians and scholars continue debating this issue. For example, it appears that the Quran provides that any attempts to modify living things would be a sin. However, if the purpose behind the modification is essential or done to prevent harm and promote the welfare of all, then such a modification is permissible. As such, if one were to take the position that genetic modification is conducted to reduce reliance on pesticides and herbicides, which pollute the environment, or feed the hungry, which is a an action benefiting the welfare of the public, then genetic modification is arguably justifiable under Islamic law.
Some Muslim theologians and scholars, however, debate whether genetically modified foods are in fact benefiting the public. For example, GM seeds are engineered to contain certain traits (e.g., to withstand certain weather and soil conditions). In order to compete and survive farmers would have to buy the GM seeds from GM companies rather than depend on the more traditional farming methods. In this way, farmers would become dependent on GM companies for their seeds. This is especially detrimental to farmers in the developing nations as they would be at the mercy of GM companies and the prices they charge for the GM seeds.
According to some Muslim scholars such conduct would violate certain Islamic principles that people should help the needy and the hungry without being motivated by profit. Furthermore, while biotechnology may be permissible under Islamic law when it is used for the benefit of the public, it is questionable whether such use will be sanctioned if the biotechnology is for the benefit of a certain group of people. In this case, that certain group would be the GM companies because not only will they stand to profit handsomely but they would also control and dictate, in large measure, food production and development here and abroad.
Also, it is still questionable whether GMOs do in fact prevent harm. For example, we do not know the full extent of the ramifications of genetically engineered plants that are herbicide and pesticide resistant. While such plants may reduce our dependence on herbicides and pesticides in the immediate future, we do not know the effect of such plants on animals and humans as no long term studies have been conducted. Many questions remain unanswered. We do not know whether or not native plants that have been pollinated by GMOs will express the genetically modified genes and in what form that expression will take. Additionally, there has been some concern as to whether insects feeding on GMOs would be adversely affected. For example, researchers have discovered that that the death rate of lacewing insects and bees has dramatically increased when they were fed genetically modified foods. While others rush to contradict these findings, the detractors do not offer iron-clad evidence either. At best, all anyone can say is that the evidence is inconclusive and needs additional studying. For Islamic scholars debating the issue a decision has to be made whether the current available information regarding the safety of GMOs is sufficient to make a determination on whether the use of such crops is consistent with the Islamic teachings.
But returning to the question of whether GMOs are halal, that question too is not free from controversy. While the Islamic Jurisprudence Council and Islamic Food and Nutrition Council of America take the position that foods derived from GMO’s are halal many followers of Islam have doubts and concerns, and, at a minimum, would prefer their food labeled. (See this article which discusses the passage of the Biosafety Act in Malaysia that now makes labeling of genetically modified food, feed and pharmaceuticals mandatory because the Malaysian population, consisting largely of Muslims, wants to make informed decisions concerning their food choices).
Source of information concerning Islamic law: http://www.metanexus.net/conference2005/pdf/mohd_safian.pdf
UPDATE: A new collection of essays gathered in Acceptable Genes: Religious Traditions and Genetically Modified Foods, Edited by Conrad G. Brunk and Harold Coward (SUNY Press, 2009), further explores different religious perspectives on GMOs. See Brittany Shoot’s discussion of the essay collection.