Arbitration System

Hello Fishies!

As I have mentioned in the past and DC did not tell you, the king crabbers were "on strike" at the beginning of the season. Here is some information from the government website about how this is supposed to be resolved....

What is the Arbitration System?

The Arbitration System (System) is a series of steps that harvesters and processors can use to negotiate delivery and price contracts. Most of the System is regulated through private contracts among QS/IFQ holders and PQS/IPQ holders. The System is designed to minimize antitrust risks for crab harvesters and processors.

The System has two main parts:

1. Each year three groups of experts are hired: one to produce an annual Market Report, one to determine a Non-Binding Price Formula for negotiations, and one or more experts to assist in mediation and contract negotiations.
2. Once these experts are selected, some IFQ and IPQ holders can use a series of negotiation approaches established in the System to resolve delivery and price conflicts. The negotiation approaches are limited to IFQ holders who don't also hold PQS/IPQ, and who aren't affiliated with PQS/IPQ holders. These are Arbitration IFQ holders. They can negotiate with a single IPQ holder. The contracts with the experts must limit the sharing of information.

Do I have to participate in the Arbitration System?

YES. All CVO QS/IFQ and PQS/IPQ holders must participate by joining an Arbitration Organization by May 1 of each year. This Organization will establish contracts with the three groups of experts, give copies of the reports to its members, and collect fees for the Arbitration System. CVC IFQ holders are not required to join an Arbitration Organization until the 2008/2009 fishing year.

What happens if the fleet does not participate?

Under the final rule (see §680.20), NMFS will not issue IFQ or IPQ in a crab QS fishery until Arbitration Organizations representing enough QS and PQS holders to account for at least 50 percent of the QS and 50 percent of the PQS issued for a fishery select the Market Analyst, Formula Arbitrator, and Contract Arbitrators, and notify NMFS of their selection. Once these experts are selected, that fishery's fleet will be issued IFQ and IPQ. This requirement is intended to ensure that the Arbitration System is in place prior to the start of the fishery.

What is the Arbitration System timeline during the 2006/2007 season?

• May 1, 2006 is the deadline for QS and PQS holders to join an Arbitration Organization.
• May 1, 2006 is the deadline for Arbitration Organizations with members who are QS or PQS holders to submit a complete Annual Arbitration Organization Report.
• June 1, 2006 is the deadline for Arbitration Organizations to select the Market Analyst, Formula Arbitrator, and Contract Arbitrators and notify NMFS.
• 50 days prior to the start of the crab fishing season established by ADF&G is the deadline for the completion of the Market Report produced by the Market Analyst and Non-Binding Price Formula produced by the Formula Arbitrator

- June 25, 2006 for the Aleutian Island Eastern and Western Golden crab fisheries.
- July 25, 2006 for all other fisheries (e.g., Bristol Bay red king crab, Tanner, and Snow crab)

What are the Stages in the Arbitration System?

• Join an Arbitration Organization
• Commitment of shares by an IFQ holder to an IPQ holder.
• Select Experts to provide necessary information for the fleet through mutual agreement among Arbitration IFQ holders and IPQ holders.
• Select an approach for negotiations: IFQ and IPQ can reach agreements on price through open negotiations, a lengthy season approach, or share matching.
• Negotiate, mediate, or enter a binding arbitration if price negotiations are not successful.

What is an Arbitration Organization?

An Arbitration Organization is an association designed to assist harvesters and processors in establishing contracts with experts and facilitating compliance with the contracts. There are three types of Arbitration Organizations: one for PQS and IPQ holders; one for QS and IFQ holders that are affiliated with PQS and IPQ holders; and one for QS and IFQ holders who are not affiliated with a PQS or IPQ holder. Arbitration Organizations have formed for all of the crab fisheries and contact information is available on our website.

What is commitment of IFQ or IPQ?

A harvester commits Class A IFQ to an IPQ holder by notifying the IPQ holder. This commitment provides an assurance that a Class A IFQ holder has a processor with matching IFQ to deliver their crab. When IFQ is committed to an IPQ holder, that IPQ holder cannot use the IPQ that has been committed for processing another IFQ holder’s crab. A commitment lasts unless both parties choose to terminate it.

Who are the experts?

There are three experts who provide information or assist in the arbitration process. These experts are selected by the unaffiliated QS/IFQ Arbitration Organization and the PQS/IPQ Arbitration Organization.

What is the Market Report?

It is an analysis of market conditions and historic price agreements among harvesters and processors.

What is the Non-Binding Price Formula?

It is an estimate of prices in a crab fishery. It can be used in the negotiation approaches.

What are the negotiation approaches?

There are three basic approaches. At any point prior to the season, any IFQ holder (including affiliated IFQ holders) and any IPQ holder can engage in Open Negotiations. Other approaches that may be used by Arbitration IFQ holders and IPQ holders include a Lengthy Season approach, in which some delivery terms are decided pre-season others are negotiated mid-season. Share Matching is another preseason approach in which Arbitration IFQ holders "match up" shares pre-season with IPQ holders that have available IPQ. There are some limits on when these approaches can be used.

Once the season begins, if there is not resolution on specific issues, IFQ and IPQ holders can enter into Binding Arbitration in which an arbitrator uses the Market Report, Non-Binding Price Formula and other information to establish binding contract terms. This system uses the last-best offer approach.

During the season, the System allows for Post Arbitration Opt-in. Arbitration IFQ holders who aren't committed can opt-in to a contract with an IPQ holder with available IPQ under the same conditions as an existing contract. The system also allows for quality and performance disputes to be addressed with the assistance of an arbitrator.

Can we bargain collectively in cooperatives?

Only QS/IFQ holders who are in an FCMA cooperative can bargain collectively. PQS/IPQ holders cannot. An FCMA cooperative can form among harvesters that are not affiliated with a PQS or IPQ holder. Collective bargaining for price can only be done by an FCMA cooperative that is bargaining on behalf of its members.

The Arbitration System regulations establish contracts among the Arbitration Organizations and the Contract Arbitrators. The regulations outlining the requirements of these contracts do not specifically prohibit two or more FCMA crab harvesting cooperatives from participating collectively in a binding arbitration (See the regulations at 680.20(h)(3)(ii)(A)). However, the ability of FCMA cooperatives to collectively engage in a binding arbitration depends on the interpretation and application of the specific terms of the contracts among the Arbitration Organizations and the Contract Arbitrators. In any case collective arbitration should only be undertaken after a careful review of existing antitrust laws. Information on pertinent antitrust laws and precedent is available through the Antitrust Division of the Department of Justice http://www.usdoj.gov/atr/. A helpful and comprehensive guide on cooperatives and antitrust law is available at http://www.rurdev.usda.gov/rbs/pub/cir59.pdf.

It is important to note that the contracts are intended to include terms that prohibit collective activity among the members of two or more cooperatives. To minimize potential conflicts with this regulatory requirement, collective binding arbitration activity should be undertaken among cooperatives' authorized representatives, and not among the individual members of a cooperative.

How has the Share Matching System Changed?

NMFS has modified the timing for "matching shares" between unaffiliated IFQ holders and IPQ holders. NMFS has also modified when an IFQ holder must initiate a binding arbitration proceeding. This regulatory change is effective August 14, 2006. NMFS modified the arbitration system to allow harvesters and processors 5 days (120 hours) after NMFS issues IFQ and IPQ (NMFS will post those amounts on our website) to voluntarily "match up" their IFQ and IPQ shares. This allows harvesters and processors time to finalize any voluntary matches once their IFQ and IPQ amounts are issued. From 5 (120 hours) to 15 days (360 hours) after the issuance of IFQ and IPQ for a specific crab fishery, harvesters unaffiliated with a processor can unilaterally match IFQ shares with a processor with available IPQ. If the harvesters and processor cannot agree on price and other delivery terms, and the unaffiliated IFQ holder wishes to initiate a binding arbitration proceeding, the harvester must do so by the end of that 15 day (360 hour) period. This change will allow unaffiliated IFQ holders to use the arbitration system as originally intended by the Council--as a means to provide a pre-season or early season resolution to price and other delivery terms.

The previous share match approach to resolve price disputes had not met the needs of IFQ holders because they were not able to initiate arbitration 15 days prior to the start of the season, as required by previous regulation. IFQ holders have noted a desire to use the share match approach as originally intended. Under the current schedule for stock assessments and TAC setting, NMFS typically does not issue IFQ and IPQ 15 days prior to a season opening. NMFS issued quota 5 days prior to the season during the 2005/2006 fishing year for most fisheries. This schedule effectively limits the ability of IFQ holders to rely on the share match approach to achieve a price resolution. The change in the timing for share matching and initiating binding arbitrations should correct this problem.

Stay tuned

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