USDA recommends that if arbitration is voluntarily used, then the panel should
have a balanced panel of arbitrators, and entities should have the ability to appeal.
Additionally, such decisions made by the arbitrators should be included on its website to

improve transparency and knowledge to the market.

Respectfully submitted,

Edward Avalos

Under Secretary

Marketing and Regulatory Programs
U.S. Department of Agriculture
Washington, D.C. 20250


BEFORE THE

SURFACE TRANSPORTATION BOARD

STB EX PARTE NO. 699

ASSESSMENT OF MEDIATION AND ARBITRATION PROCEDURES

COMMENTS OF THE

U.S. DEPARTMENT OF AGRICULTURE

Edward Avalos

Under Secretary

Marketing and Regulatory Programs
U.S. Department of Agriculture
Washington, D.C. 20250

Date: October 25, 2010


AUTHORITY AND INTEREST
The Secretary of Agriculture is charged with the responsibility under the

Agricultural Adjustment Act of 1938 and the Agricultural Marketing Act of 1946 to

represent the interests of agricultural producers and shippers in improving transportation
services and facilities by, among other things, initiating and participating in Surface
Transportation Board (Board) proceedings involving rates, charges, tariffs, practices, and
services.

Agricultural products are a significant portion of total U.S. rail traffic. During
2009, agricultural and agricultural-related products comprised nearly 20 percent of all rail
movements— 404 million tons.! This includes 152 million tons of grains and oilseeds,
131 million tons of food and food products, and 19 million tons of agricultural chemicals.

The ability to appeal rail rates and practices is important to agricultural shippers
and producers. Agricultural producers typically receive a price for their products which
is net of transportation and some are dependent upon rail transportation to move those
products to international and domestic markets.
COMMENTS

The Department of Agriculture (USDA) thanks the Board for holding this
proceeding to allow interested parties to comment regarding the Board’s mediation and
arbitration procedures.

The Board currently requires mediation for all rate cases and encourages
mediation for other disputes. Although either party can decide not to accept an
unfavorable outcome, mediation has been effective in resolving disputes between

railroads and shippers. Although mediation is relatively cheap, it requires a Board-

' Association of American Railroads, Freight Commodity Statistics, 2009.


appointed mediator that understands the railroad system. One of the advantages of the
Board providing a mediator is that the mediator can communicate to each party what the
Board’s position would likely be regarding the issues in the case, often resulting in
quicker resolution of the issues.

Although arbitration at times can be the lower cost alternative, it is not always
cheaper, simpler, and faster than litigation. Arbitration requires a higher level of
commitment from each party because once arbitration is chosen, both parties must
comply with the arbitrator’s decision. The arbitrator or panel of arbitrators must
understand the railroad industry and also the industry of the complainant in order to make
good decisions. In addition, the arbitrator or panel must be trusted to deliver an impartial
decision. Arbitration can occasionally result in outcomes inconsistent with established
precedent and, absent fraud or bias, it is difficult to get a court to overturn these
decisions.

The Board has procedures in place to handle voluntary arbitration through a
Board-approved arbitrator. Although these procedures exist, shippers have not used the
Board’s arbitration procedures.

Shippers have told USDA that they are reluctant to use the Board’s arbitration
rules because there is only one arbitrator; this arbitrator understands the rail industry, but
is usually not conversant with the shipper industry.

Another factor hindering the willingness of shippers to use the Board’s arbitration
system is that all arbitration decisions must be consistent with past Board decisions. This
makes the Board a de-facto reviewer of any arbitration decision, which adds another layer

of complexity to the arbitration process.