By Michael Shields and Philip Blenkinsop
BERN/BRUSSELS (Reuters) - Switzerland skirted a direct clash with the European Union over immigration curbs on Friday when a parliamentary panel rejected the government's threat to impose unilateral quotas on foreigners next year in favor of a compromise.
The lower house committee drafting legislation on the politically sensitive topic instead proposed giving local people hiring preference as a way to ease pressure on domestic job markets without infringing too much on EU free movement rules.
Negotiations that neutral Switzerland conducts with the EU to resolve the matter will be scrutinized for potential hints of what kind of deal Britain might expect following its June vote to leave the bloc.
The compromise bill, criticized by the far-right Swiss People's Party (SVP) as too vague and a betrayal of voters' demand for quotas in a 2014 referendum that must be implemented by February, now moves to the full lower house for debate.
Kurt Fluri, a committee member from the pro-business Liberals party, said the committee had "rejected that the government should be able to decide measures that violate the free movement of people".
He said most members of the panel wanted to preserve bilateral economic accords that enshrine the principle of free movement in return for enhanced Swiss access to the EU's common market, which takes most exports from the Alpine republic.
These accords will be jeopardized if the Swiss unilaterally restrict EU immigration.
Free movement of people is a cornerstone of EU policy. Britain voted in June to leave the EU, in large part to stop unlimited immigration of EU citizens that critics say has pressured job markets, social services and schools.
BRUSSELS WARY OF GIVING GROUND
The European Commission, which faces years of similar negotiations on migration rules with Britain, has shown little inclination to accommodate Switzerland or budge from insistence the Swiss respect free movement rules or lose trade benefits.
Brussels believes that any compromise with Switzerland would heighten demands from Britain.
One EU source said Bern and Brussels had agreed a provisional timetable, with Switzerland encouraged not to rush through any legislation but to wait until mid-December.
European Commission President Jean-Claude Juncker is to meet Swiss President Johann Schneider-Ammann on Sept. 19 in Zurich with the aim of putting together a joint text outlining the way forward. The Commission would seek to involve EU member states from October, the source said.
"It can only be worse than what Cameron got," the source said, referring to a deal struck with then-Prime Minister David Cameron in March, containing limited concessions meant to reduce Britain's attractiveness to EU immigrants. It was not enough for most Britons, who voted 52 to 48 percent to quit the EU.
"It really has to be tailor-made for the Swiss so that it does not open the door for others," the source added.
A statement from Switzerland's governing Federal Council said the outcome of Britain's EU referendum "doesn't make the talks any easier; the search for a solution remains difficult".
Swiss officials are trying to curb immigration into a country where a quarter of the people is foreign. Employers that depend on foreign expertise are watching the issue closely.
Parliament committee chief Heinz Brand, a member of the SVP, said the draft legislation unveiled on Friday would severely crimp the attractiveness of hiring people from abroad.
It would favor local people including EU workers who already live here for jobs that open up. It could also require employers to report open positions before recruiting more staff from abroad, and let the cabinet take more measures if needed as long as a joint Swiss-EU commission agrees.
(Additional reporting by Alastair Macdonald in Brussels; editing by Mark Heinrich)