Costa Rica's Dairy Sector Supports Trade Retaliation Against Panama

The dairy industry in Costa Rica, represented by the National Chamber of Milk Producers (CNPL), has declared its support for the Costa Rican government's firm stance against Panama's ongoing trade embargo. The embargo, which began on July 1, 2020, has significantly affected Costa Rica's dairy exports, leading to a direct macroeconomic loss exceeding $200 million due to unfulfilled export opportunities.

As a result of Panama's trade restrictions, Costa Rican dairy producers have had to urgently reallocate 85,000 kilograms of fluid milk daily, originally destined for the Panamanian market. This sudden shift has led to an artificial surplus in the domestic market, causing the closure of numerous small-scale cheese and dairy processing plants in Costa Rica.

Underlying Issues and WTO Ruling

The CNPL attributes the trade dispute to Panama's protectionist policies, which lack scientific or technical justification. This view is supported by a favorable ruling for Costa Rica from a World Trade Organization (WTO) arbitration panel. However, the ongoing controversy is exacerbated by Panama's procedural delays, as it has not utilized Article 25 of the WTO's Dispute Settlement Understanding, a mechanism that could allow for arbitration under specific timelines.

Impact on Panama and Broader Market Dynamics

Panama has historically been a net importer of dairy products, with Costa Rican quotas covering 40% to 50% of its consumption deficit. Despite the embargo, Costa Rican dairy investments remain significant in Panama, with Costa Rican capital being the main purchaser of Grade A raw milk in the country.

In response to the continued trade barriers, Costa Rica has aggressively diversified its export markets, directing its dairy surplus to over a dozen international destinations, including the United States, the Netherlands, Colombia, and multiple Central American nations.

The CNPL has called for a resolution through technical discussions between the trade ministries of both countries, warning that the ongoing restrictive measures are undermining the economic integration of the Central American Common Market.