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CORRECTED-CN Railway, union agree to start arbitration, ensuring no strike

(Corrects headline and first paragraph to show that arbitration process has begun. Removes reference to arbitration starting should contract talks fail)

TORONTO, March 28 (Reuters) - Canadian National Railway Co and the union representing its conductors, yard workers, and traffic coordinators have agreed to start an arbitration process that ensures their most recent contract dispute will not lead to a strike at Canada's largest rail operator.

Both CN and the Teamsters union, which represents some 3,000 workers, confirmed the development by email on Friday. CN spokesman Mark Hallman said he expects the arbitration process towards a new collective agreement to conclude by mid-June.

Union members have twice voted down tentative agreements reached with the Montreal-based railway, the last time by a narrow vote of 891 to 852.

CN said last week it was prepared to meet one last time with the union, but only if the union agreed to go to arbitration should talks fail.

Members have rejected the last two tentative agreements because they do not trust the company to respect provisions on rest under the existing contract, union members have said.

The dispute comes as CN works to comply with a government order to move 5,500 grain cars a week to address a massive bottleneck. The backlog is due to a record-shattering harvest in 2013, exacerbated by transport disruptions due to an extremely cold winter.

(Reporting by Cameron French and Solarina Ho; Editing by Jeffrey Hodgson and David Gregorio)