Latin Analysis: Costa Rica and Panama’s Trade Standoff
A dispute over agricultural imports between Costa Rica and Panama has grown into an ongoing trade standoff, becoming a significant source of bilateral tension in Central America. Years into the dispute, it has broadened from specific agricultural sanitary issues to Panama’s recent suspension of electricity sales to Costa Rica. With a new Costa Rican president in office, it is a turning point in the ongoing dispute, which has consequences not only for the future of the bilateral relationship, but also of Central American trade and energy integration.
The Origins Of The Dispute
The trade dispute began in 2019, when Panama imposed sanitary and phytosanitary restrictions on a range of Costa Rican agricultural exports. The affected products include beef, pork, poultry, dairy, and several fruits and vegetables, effectively closing Panama’s market to the bulk of Costa Rica’s agricultural exports to Panama. Panama suspended health protocol approvals for around 26 Costa Rican processing plants, citing concerns including handling of brucellosis – an infectious bacterial disease that spreads from animals to humans – and broader food safety grounds. Costa Rica disputed this framing from the outset, arguing the measures were protectionist, rather than scientifically justified.
Costa Rica formally challenged the restrictions at the World Trade Organization (WTO) in January 2021. Staffing constraints delayed proceedings for the WTO process, so the panel did not issue its final report until December 2024. When it did, the panel ruled in Costa Rica's favor, concluding that Panama’s restrictions lacked the scientific risk assessment required under the WTO Agreement on Sanitary and Phytosanitary Measures.
Panama appealed the decision in January 2025. Under normal circumstances, an appeal would move to the WTO’s Appellate Body, but that body has been non-operational since 2019 due to a long-running dispute among WTO members over appointing new judges. With no functioning appellate mechanism, Panama’s appeal sits in procedural limbo with no binding resolution deadline, and the original restrictions remain in force in the meantime.
Costa Rica fears significant economic damage, as the dairy sector has reported losses exceeding $200 million. Across all affected sectors, total export losses have been estimated at over $100 million. Meanwhile, Panama’s defense has consistently relied on two pillars: the legitimacy of its sanitary standards and a reciprocity argument. Panamanian officials have alleged that Costa Rica applied its own commercial and sanitary restrictions against Panamanian producers for over a decade, and that any resolution must address those measures on equal terms. Panamanian cattle ranchers have been particularly firm, insisting that no Costa Rican meat or dairy should enter the country until the underlying issues are fully addressed.
The Dispute Escalates As Fernández Takes Office
Soon after new Costa Rican president Laura Fernández took office on May 8, 2026, the dispute moved to the forefront of her foreign policy agenda. On May 15, during a visit to an agricultural area in Cartago, Fernández described Panama's measures as an “arbitrary commercial blockade” and announced she was directing Foreign Minister Manuel Tovar to activate international mechanisms to resolve it. She made clear that the matter had moved beyond normal trade ministry channels.
The Panamanian government rejected the characterization of its actions as unilateral or arbitrary, and reiterated its willingness to negotiate. Panama’s Minister of Commerce and Industries, Julio Moltó, said his government was prepared to meet with Costa Rica's new administration, but solely on the premise of rules that apply equally to both sides. Panamanian cattle ranchers and their associations were more categorical, saying that no Costa Rican products would enter until the dispute was resolved.
Notably, on May 21, Panamanian President José Raúl Mulino announced the suspension of electricity sales to Costa Rica. Mulino linked the decision directly to Fernández’s public statements, criticizing her departure from diplomatic norms of discretion and moderation between neighboring countries. “International relations are based on great prudence,” he said. “It is not through a pulpit, a stage or a press conference that statements should be made that directly affect the relationship between two countries.”
This move is significant because Costa Rica generates roughly 73% of its electricity from hydroelectric sources, and so is structurally exposed to drought during El Niño periods. Costa Rica’s state electricity utility had filed a request for expanded access to Panamanian power ahead of a projected El Niño season in the second half of 2026. The Costa Rican Foreign Ministry confirmed that no firm purchase contracts for Panamanian power were in place at the time of the suspension, limiting the immediate grid impact. However, losing the option to buy Panamanian power right when it may need it most is a strategic blow.
By late May, there were diplomatic signals that both sides were hoping to address the dispute. Panama’s Minister Moltó indicated he was expecting a meeting with his Costa Rican counterpart to resume trade talks. Fernández, for her part, instructed Tovar to establish a bilateral working table with Panama and set a deadline for results. But whether that produces results will be one of the first real tests of her foreign policy.
Geopolitical Implications and Future Considerations
For Costa Rica, the stakes are high. Panama is its second-largest regional trade partner in Central America, with Costa Rican exports to Panama reaching approximately $612 million in 2025 – around 16.6% of total regional exports. The agricultural restrictions directly impact one of the country’s most politically sensitive sectors, so the domestic pressure on Fernández to produce results is significant.
For Panama, the dispute has become as much about asserting reciprocity as about the specific, localized issues that kickstarted the dispute. Mulino’s decision to draw in energy sales to the trade dispute signals a willingness to use multiple bilateral levers simultaneously, which raises the risk of the conflict spreading beyond its original scope. This decision is not just bilateral, but also has geopolitical consequences due to the SIEPAC regional electricity grid – a shared infrastructure that links six Central American countries. Therefore, a prolonged breakdown risks undermining regional grid stability and could complicate broader Central American energy integration. Ultimately, this friction threatens to stall the planned expansions of the SIEPAC network, driving up regional electricity costs and forcing Central American nations to pivot back to expensive, polluting fossil-fuel generation, instead of relying on a collective, cleaner energy pool.
The WTO process does not provide much near-term relief, as Panama’s appeal from 2025has no fixed resolution timeline, while Costa Rica has signaled it will not participate in appellate proceedings until the WTO’s Appelate Body resumes functioning. That leaves bilateral negotiation as the most viable path to resolution, but the conditions both sides h ave set for those talks remain far apart.