Brussels and Bern have spent more than a decade discussing a so-called framework deal, which would rejig five major agreements within a patchwork of 120 accords that govern non-EU member Switzerland's relations with the surrounding bloc.
But Swiss President Guy Parmelin said that the 13 years of talks had hit the end of the road, in a move which could jeopardise relations with the EU, which had made no secret of its impatience to nail down a deal.
‘Significant differences’: Switzerland cuts talks with EU over cooperation agreement
Parmelin went to Brussels in late April for talks with EU chief Ursula von der Leyen, but the pair made no headway on resolving a range of sticking points.
The two sides hit an impasse after the EU refused to budge on demands from Parmelin to exclude key issues relating to state aid, wage protections and freedom of movement from the pact.
In a statement, the Swiss government, known as the Federal Council, said it reviewed the outcome of those talks on Wednesday.
"It concluded that there remain substantial differences between Switzerland and the EU on key aspects," it said.
"The conditions are thus not met for the signing of the agreement. The Federal Council today took the decision not to sign the agreement, and communicated this decision to the EU."
The move brings the negotiations to a close, the statement said.
'A matter of fairness'
There is concern that failing to secure the framework deal might rock Switzerland's relationship with the EU at a time when around half of all Swiss exports go to the bloc, which all but surrounds the landlocked country.
Among other points, the ditched agreement covered access to the single market and fine-tuning applicable Swiss and EU laws.
The overarching deal would have required revising the agreements on free movement, industrial standards, agriculture, air and land transport -- and the creation of a joint arbitration court that could settle differences and enable compensation for breaches.
Since 2008, the EU has insisted Switzerland must sign the agreement before concluding any new bilateral deals, with negotiations getting underway in 2014.
For Brussels, those talks concluded in 2018, but the Swiss continued to press for changes and repeatedly put off signing.
The European Commission -- the EU's executive branch -- hit out at Bern's move.
The commission said the EU-Swiss Institutional Framework Agreement was essential for an enhanced future relationship.
"We regret this decision, given the progress that has been made," the European Commission said in a statement. It said the deal's core purpose was "fundamentally a matter of fairness and legal certainty".
"Privileged access to the Single Market must mean abiding by the same rules and obligations."
The commission said relations between the EU and Switzerland were already not up to speed with where they should be.
"Without this agreement, this modernisation of our relationship will not be possible," it added.
Switzerland worried that the deal could erode wage protections in the wealthy Alpine country, where salaries are significantly higher than in the neighbouring EU.
So what are the consequences of ending talks and what happens now?
The Federal Council had faced pressure from the economic and financial sectors to save the deal -- and demands from opponents to not cave in to the EU.
There have also been calls for the agreement to be put to a referendum, in keeping with the Swiss direct democracy system.
Despite Wednesday's decision, Bern said it wanted further political talks with Brussels on the road ahead.
"The Federal Council nevertheless considers it to be in the shared interest of Switzerland and the EU to safeguard their well-established cooperation and to systematically maintain the agreements already in force," the government said.
"It therefore wishes to launch a political dialogue with the EU on continued cooperation."
While it is not yet clear what the repercussions of Switzerland's move will be, they could potentially impact various sectors of the country’s economy, exports, as well as continued cooperation in the areas of trade, education and research.
Also, an estimated 1.4 million EU citizens live and work in Switzerland, including 340,000 frontier workers who are employed in various industries in border cantons, so Swiss labour market could be affected as well.
That's why “a long-term and stable relationship with the European Union remains of utmost importance for the Swiss economy”, said Economiesuisse, an association representing Switzerland’s business interests.
It added that “it is now necessary to stabilise the existing agreements and minimise the damage”.
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