Nearshoring Raises Questions About Environmental and Social Impacts in the Borderlands

This brief is part of “Election 2024: Policy Playbook,” a series by Rice University and the Baker Institute that offers critical context, analysis, and recommendations to inform policymaking in the United States and Texas.

The Big Picture

• Many U.S. companies outsource work to other countries, often to a nearby country in a process called nearshoring.
• Nearshoring manufacturing positions Mexico as an ideal option for companies seeking to relocate production back to North America. 
• This increased economic activity could bring economic prosperity and development opportunities to Mexico — most likely along the binational U.S.-Mexico border. 
• Nearshoring’s promises of economic growth also raise significant questions about environmental impacts in the border region, which can be addressed by implementing laws and regulations geared toward sustainability and environmental and local community protections. 

Summarizing the Issue

The borderlands area is often characterized by a “double exposure”: It benefits from economic integration but also suffers from profound environmental changes accelerated by it. Benefits from economic growth in the area include development and deep interdependency of cultures and societies, but this growth also produces negative impacts on the border region’s landscape, air, wildlife, competition for transboundary watersheds, and other ecological aspects.

During the 1970s to the 1990s, loosely enforced Mexican environmental laws and the growth of maquiladoras along Mexico’s northern states caused the border area to be among the most polluted in the country. Issues, such as air pollution, water quality, toxic waste dumping, and public health threats, became key concerns and have remained unresolved in the form of binational environmental disputes, social protests, and civic upheaval. These issues are the result of failures to develop effective policies and trade agreements to enforce environmental rules, exacerbating environmental injustices for the border communities and taking a huge toll on people’s health and regional ecosystems. Nearshoring is only likely to add to this if it materializes and expands.

While economically desirable, nearshoring activities can also affect fragile ecosystems and local communities. Often, these communities have long endured not only environmental impacts — such as air pollution and hazardous waste, water scarcity, irrational land use, stress on wildlife, and deforestation — but also social burdens, primarily as the result of 60 years of “maquiladora” (manufacturing) industry bringing rapid urbanization, widespread poverty, and inequality to the region.

As part of planning for nearshoring, the U.S. and Mexican governments must find a way to review their regulatory mechanisms and embrace social equity and environmental justice along the border. Otherwise, this new wave of nearshoring and additional international trade will have a huge impact on borderland populations and ecosystems. These governments should seek to craft effective transboundary policies to incentivize companies to do business properly and consciously by protecting local communities and fragile border ecosystems from negative impacts caused by a new surge in nearshoring manufacturing and trade.

Expert Analysis

Disproportionate Effects on Low-Income Areas

Climate impacts are uniformly distributed across populations and space. However, economic impacts are not. In fact, economic activity choices will have an effect in ecosystems, social well-being, and human health, depending on the location of its operations. New economic activity often magnifies existing disparities in certain communities. Low-income communities and certain vulnerable groups — Indigenous peoples, immigrants, refugees, for example, — may experience a higher levels of exposure to negative externalities from economic activity due to the following: 

• Poor housing options. 
• Lower-skilled labor opportunities. 
• Urban sprawl with lack of transportation. 
• Increased urban heat due to new developments. 
• Poorer air quality. 
• Substandard water quality and limited access.
• Concentration of industrial waste in residential areas.

Given the historical experience of manufacturing on the border, any increase in nearshoring in the area is likely to have just such a compounding effect. It is also likely to aggravate deteriorating ecosystems and negatively affect Indigenous peoples along the border and local populations who rely on natural resources for their well-being.

Therefore, maintaining and restoring environmental value in the region and protecting local communities from these and other negative impacts from additional economic activity will require effective transborder governance aimed at preserving nature and the overall sustainability of local communities and tribal cultures. The current institutional scaffolding of policy and trade agreements and their enforcement practices are unlikely to ensure adequate protection under current environmental or health and safety laws and regulations across the border. The same is true for other environmental laws and regulations against industrial developments sitting across international borders.

A Review of Current Environmental Efforts

Since the signing of the 1983 La Paz Agreement, the U.S. Environmental Protection Agency (EPA) and Mexico’s Secretariat for Environment and Natural Resources (SEMARNAT) have implemented bilateral programs to support this treaty through programs, such as Border 2020 and Border 2025. However, the lack of political will, efficient accountability bodies, and sufficient funding to address the programs' objectives have fallen short in providing environmental and social protection for border communities. Success stories and good practices to overcome the vast challenges that the region will face in the next decade are few. A review of these efforts is necessary, as both countries enter a new wave of international trade opportunities.

The 2020 United States-Mexico-Canada Agreement (USMCA) included the creation of an “Agreement on Environmental Cooperation” and an adjacent Environment Committee responsible for overseeing the implementation of USMCA’s Chapter 24: “Environment.” This chapter details areas of collaboration on environmental trade-related issues. However, this may not be enough to balance the opportunities of nearshoring with social equity and environmental justice. Not to mention the intrinsic need to integrate environmental, social, and governance (ESG) and decarbonization strategies into trade operations in the wake of corporate sustainability. The political obligation to address the exacerbated environmental degradation and industrial contamination expected from nearshoring along the U.S.-Mexico border must not be postponed.

The role of most international and transboundary committees — such as the National Environmental Justice Advisory Council (NEJAC) and the Good Neighbor Environmental Board (GNEB) — must be stepped up to protect border communities. Additional tools and mechanisms, such as the EPA’s “EJScreen: Environmental Justice Screening and Mapping Tool,” and the International Finance Corporation’s (IFC) “Performance Standards on Environmental and Social Sustainability,” could offer guidance to identify vulnerable communities and environmental risks. These must be implemented in private sector activities on both sides of the border, especially where companies are likely to establish new manufacturing facilities. Both public and private entities must be held accountable for reducing environmental impacts and for protecting local communities from environmental harms.

Policy Actions

There is room for improvement in social and environmental policies related to trade and commerce at and around the U.S.-Mexico border, especially as the USMCA will be renegotiated in 2026. Some of the elements that can be incorporated as part of the USMCA’s mandated review geared toward addressing the expected economic development from nearshoring include:

• Crafting additional environmental law principles at national and binational levels.
• Clarifying provisions that govern environmental lawmaking, environmental justice screenings, and policymaking.
• Increasing the participation of the civil services sector in the adoption of tougher regulatory measures.
• Creating programs that focus on assistance, remediation, and social investment at the border region.
• Strengthening environmental institutions and reduce “environmental exceptions” that permit regions and countries to increase trade without conservation of natural resources.

These are becoming common practices in other regions of the world with Costa Rica, introducing the Trade and Environmental Sustainability Structured Discussions (TESSD) under the World Trade Organization (WTO), and Peru and Colombia, currently leading initiatives that present biodiversity provisions in multilateral trade contexts. 

The Bottom Line

Nearshoring would increase manufacturing and further economic development across U.S.-Mexico border areas — but it also raises significant questions about environmental and social impacts. Both governments should begin drafting and implementing effective transboundary policies that incentivize companies to protect local communities and fragile border ecosystems from a manufacturing surge, before it is too late.

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