ZURICH (Reuters) - Swiss talks with the European Union have not made enough progress so far to clinch a new treaty due to differences over rules to protect high Swiss wages from cross-border competition, Foreign Minister Ignazio Cassis told parliament on Thursday.
Cassis did not rule out the possibility of striking a deal with the EU, Switzerland's biggest trade partner, by the end of this year, though he reiterated that the labour rules remain a non-negotiable "red line" for the Swiss side.
His remarks underscored the difficulty of nailing down a treaty that Brussels has demanded for a decade and that has been the subject of negotiations for five years.
The Swiss cabinet, where two pro-Europe ministers announced their pending retirements this week, is due to discuss the way forward at a meeting on Friday.
The Commission has been pushing for a treaty that would sit atop an existing patchwork of 120 sectoral accords and have the Swiss routinely adopt changes to rules governing the single European market of 500 million people.
It would also provide a more effective platform to resolve disputes, providing greater legal certainty and strengthening commercial ties.
Should treaty talks fail -- and the window is closing fast with elections in Switzerland and for the European Parliament both due next year -- the sectoral accords would stay in effect, but bilateral relations would enter a deep freeze.
The Commission has threatened not to extend beyond this year recognition of Swiss stock exchange rules that allow cross-border trading, which could touch off tit-for-tat escalation.
Failure to strike a deal would mean no increase in Swiss access to the single market, dashing hopes for a new electricity union. It could also endanger unfettered EU market access for Swiss makers of products such as medical devices, if agreements on mutual recognition of industrial standards lapse.
After European Commission President Jean-Claude Juncker last year proposed letting joint arbitration panels rather than the European Court of Justice handle some disputes, talks had been making good progress.
The offer helped defuse arguments from the right-wing, anti-EU Swiss People's Party, the largest in parliament, that foreign judges should not be allowed to dictate to the sovereign Swiss.
But negotiations ran aground again in August when Switzerland's normally pro-Europe centre-left baulked at adapting the labour rules, a demand from Brussels.
"Labour protections remain a red line and will remain a red line until a new decision" by the government, Cassis told a parliamentary debate on EU ties.
With both the left and right opposed to a deal, the treaty would hardly have a chance of surviving a referendum that would be likely under the Swiss system of direct democracy.
(Reporting by Michael Shields; Editing by Gareth Jones)