EU-Swiss treaty talks run aground amid "significant differences"

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BRUSSELS (Reuters) - Talks to simplify and strengthen ties between the European Union and Switzerland floundered on Friday, with Swiss President Guy Parmelin saying "significant differences" remained.

The two sides failed to update a draft agreement they struck in 2018 after Switzerland insisted state aid, labour rules and citizens rights be carved out of it.

For its part the 27-member EU wants an overarching treaty to bind non-EU member Switzerland more closely to single market rules, including free movement of people, and provide a more effective way to resolve disputes.

Parmelin said Switzerland was keen to develop its relations with the EU, but major obstacles remained following his talks with European Commission President Ursula von der Leyen.

The Swiss government "could not sign the Institutional Agreement without reaching satisfactory solutions on the issues of wage protection, the EU's Citizens' Rights Directive and state aid," Parmelin told reporters.

"Switzerland put forward specific proposals on these issues during discussions at a technical level. However, those discussions did not bring about the desired progress."

Switzerland had agreed to dynamically adopt EU single market law, but in return wanted a "balanced agreement" which would be acceptable to the Swiss people and parliament, Parmelin added.

At present EU-Swiss economic ties are now governed by more than 100 bilateral agreements stretching back to 1972.

The EU said it remains committed to the 2018 draft agreement. Both sides said they would remain in contact.

"The draft agreement of 2018 is good and it is what we need," a Commission spokesman told a news conference.

A carve-out of the three areas of Swiss concern was "simply not acceptable to the EU side", an EU spokesman said, although its door remained open.

Failure to strike a deal would block Switzerland from any new access to the single market, such as an electricity union. Existing accords will also erode over time, such as on cross-border trade in medical products.

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(Reporting by Philip Blenkinsop in Brussels and John Revill in Zurich; editing by Philippa Fletcher)