By Michael Shields
ZURICH (Reuters) - Switzerland's plan to forge a new treaty cementing ties with the European Union has hit the rocks after the normally pro-Europe centre left joined the far right in resisting a deal that Swiss labour unions say might undermine wages and working conditions.
For the SGB union federation allied with the centre-left Social Democrats (SP), Bern's efforts to explore tweaking Switzerland's strict rules that protect Europe's highest wages were a step too far towards the treaty demands of Brussels.
The far-right Swiss People's Party (SVP) also opposes a treaty that it sees as infringing Swiss sovereignty. So political support for an accord -- lukewarm to start with -- now appears so low as to spell the treaty's doom. The SVP is the largest party in the Swiss parliament and the SP is second.
Ties between the EU and non-member Switzerland are now governed by more than 100 separate agreements. Brussels wants to supersede them with a single treaty, to provide a better platform to settle disputes and to ensure that Switzerland adopts changes to the rules of the single market.
But some Swiss worry that a treaty might make it easier for employers to import EU workers and undercut Swiss wages.
Failure to strike a deal after years of talks would plunge ties into a new ice age, and could prompt punitive steps. For example, the EU's executive commission wants progress on a treaty before it renews permission for Swiss and European equity traders to access each others' markets beyond 2018.
Swiss Economy Minister Johann Schneider-Ammann, from the centre-right Liberals, pledged to continue talks with labour, employers and Switzerland's 26 regional cantons, in the hope of presenting joint proposals to the cabinet next month. But political insiders now see the effort as futile.
"A treaty seems further away than ever," said Gerhard Pfister, head of the centre-right Christian People's Party in the four-party government coalition.
Both sides had intended to initial a deal by the end of this year. Pfister said this was now unlikely, and improbable next year too, given the distractions of negotiations over Britain's exit from the EU and elections in both Switzerland and the bloc.
The only hope, he said, was for the European Commission to accept a Swiss "red line" on preserving rules designed to keep foreign labour from undercutting wages and working conditions.
In Brussels, a European Commission spokeswoman said the trade union discussions were a Swiss internal affair.
"We remain ready to continue the negotiations in good faith and it will not be easy to reach an agreement. For the EU it is, however, very clear that those who want to do business in our internal market need to comply with the rules," she said.
"The treaty is as dead as a doornail," Swiss broadcaster SRF said, noting union leaders' strong words had made it impossible for them to reverse their position, and the slanging match ruled out chances that a treaty would win a binding referendum.
Financial markets have not reacted sharply, but one Zurich trader said he was watching the issue as a potential threat to Swiss assets should ties with the EU deteriorate.
Negotiations had already struggled, and Swiss leaders say Britain's planned exit from the EU makes it more difficult to clinch a deal, because Brussels will not show the Swiss leeway that Britain could seize on.
Negotiators made progress on allowing arbitration panels to handle some disagreements and on regulating Swiss state aid, but talks snagged on Switzerland's wish to shelter its workers and small businesses.
Brussels has a particular problem with a rule that requires EU employers bringing in temporary workers to notify the Swiss authorities eight days in advance.
Under rules adopted in 2004 after Switzerland signed up to free movement with the EU, employers must report which workers are coming and what jobs they will do. Swiss inspection teams then show up at work sites and do spot checks to ensure firms comply with Swiss rules.
The EU's internal rules normally allow temporary workers hired in one country to be sent to other countries on the terms of the home country, although Brussels is seeking to tighten that system at the request of France and other rich EU members.
(Aditional reporting by Robert-Jan Bartunek in Brussels; Editing by Peter Graff)