Switzerland has declined to sign a proposed deal granting Croatians free access to the Swiss employment market.
Croatia and Switzerland had agreed the deal last summer after Croatia joined the EU.
Switzerland said the accord could not be signed “in its current form”, after a recent referendum invalidated the Swiss-EU pact on freedom of movement.
Swiss voters narrowly backed a proposal to bring back strict quotas for immigration from EU countries.
The fiercely independent nation is not a member of the EU, but has adopted large sections of EU policy.
Although the Swiss economy is booming and unemployment is low, many Swiss worry about the effects of immigration.
Justice Minister Simonetta Sommaruga called Croatian Foreign Minister Vesna Pusic to tell her Switzerland would not be able to sign the deal extending the right of free access to Switzerland to the EU’s newest member state.
Simonetta Sommaruga also informed Brussels that the agreement needed to be re-examined, her spokesman, Philippe Schwander said.
The last week referendum had created a “new constitutional disposition”, Philippe Schwander noted.
He stressed that the justice minister was seeking a “solution” to ensure Croatians were not being discriminated against.
Following the referendum, the EU warned it would reassess its relations with Switzerland “as a whole”.
The economic impact could be great since half of Switzerland’s exports are to the EU, with Germany its biggest trading partner.
A quarter of the eight million-strong population is foreign, and last year 80,000 new immigrants arrived.
Since 2007, most of the EU’s 500 million residents have been on an equal footing with locals in the Swiss job market – the result of a policy voted into law in a 2000 referendum.