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Switzerland is also negotiating its relationship with the EU

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Switzerland is also negotiating its relationship with the EU

Switzerland is a landlocked alpine country.
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Relations between the European Union and Switzerland could take a turn for the worse as negotiations for a new treaty have all but stalled.

The breakdown in talks over the summer was precipitated by Swiss labour unions who accuse the EU of trying to undercut Swiss working conditions.

Without an agreement, EU officials have warned, cross-border stock trading could be severely impacted and Switzerland could find its access to the single market limited.

Here's what you need to know about the situation.

100 bilateral agreements

Currently, the relationship between the 28-country bloc and the landlocked alpine country is governed by more than 100 bilateral agreements ratified since a first free trade agreement was struck in 1972.

The agreements — ranging from free movements of persons, public procurement, agriculture, air and land transport to deals on taxation and savings and combating fraud — also see Switzerland participate in the single market and the Schengen area.

Some 20 joint committees work on the implementation of these deals, which oblige Switzerland to take over relevant EU legislation in the covered sectors. The country also pays a financial contribution to access the single market — since 2007, Switzerland has paid CHF 1.3 billion (€1.15 billion).

The EU now is Switzerland's main trading partner, whereas Switzerland is the EU's third trading partner after the USA and China. Additionally, it is a very important partner of the EU for trade in services, in particular commercial services.

But for the past ten years, the EU has been pushing for a new treaty that would encompass all these agreements and provide a more effective platform to resolve disputes.

Talks break down

The negotiations all but broke down over the summer as Swiss unions rejected proposals by the EU which they say would hurt pay for Swiss-based workers and undercut local working conditions.

The EU would, for instance, like its trading partner to relax rules forcing EU employers to give Swiss authorities eight days advance notice before sending temporary workers across the border and to put down deposits to cover any fines.

However, the Swiss Trade Union Confederation (SGB) said in August that it would no longer take part in negotiations with the Swiss ministry of commerce. Its president, Paul Rechsteiner, told a press conference that they "will take measures — up to forcing a referendum — to prevent a possible reduction of the protective measures."

Furthermore, the EU has also flagged that it does not permit the kind of unrestricted state guarantee from which Swiss cantonal banks benefit. EU member states must, in principle, notify the European Commission of any state subsidies so that it can determine their eligibility.

The rules are meant to ensure that governments do not give specific companies an unfair advantage over competitors. Breaking them can lead to hefty fines.

Finally, Switzerland's famed, long-lasting neutrality could also be a hurdle.

A framework agreement would have "a major impact on neutrality and would call it into question," Swiss Finance Minister Ueli Maurer has said.

Before it can be ratified, any agreement would have to be approved by a referendum in Switzerland.

EU ramps up the pressure

For European Commission President Jean-Claude Juncker, the clock is ticking. He warned earlier this month that failure to strike a deal "could get really bad."

"Negotiate with me, wrap it up with me," he told Swiss broadcaster RTS, urging for an agreement to be struck before the end of his tenure in May 2019.

Over the weekend, Johannes Hahn, EU Commissioner for Enlargement Negotiations, also heaped pressure on Switzerland, warning that "negotiations cannot become a never-ending story."

"I expect that by the end of October at the latest we see clearly whether we can put something together or not," he told the Neue Zuercher Zeitung newspaper.

Failure to strike a deal would mean no increase in Swiss access to the single market, dashing hope for a new electricity union. It could also endanger unfettered EU market access for Swiss makers of products such as medical devices.

More immediately, it could put an end to cross-border stock trading as the Commission agreed last year to recognise Swiss bourse trading rules only until the end of 2018.

Trading volumes on Swiss stock exchanges could plunge by 70 to 80% should the EU refuse to recognise Swiss exchange rules as equivalent to EU norms.

Brexit looms large

Swiss authorities have said the EU toughened their stance following the UK's referendum to exit the bloc and the subsequent combative divorce negotiations.

The EU is also keen to wrap up talks with Switzerland before Brexit negotiations enter their final stage — the UK is schedule to formally exit the EU on March 29, 2019.

The talks between Brussels and Bern are also scrutinised by many in London, who see the partnership as a possible blueprint for Brexit.