* Nearly a third of doctors in Switzerland are EU citizens
* EU workers benefit from 1999 accord on free movement of people
* Some Swiss feel they are losing out to EU workers
* Resentment frames debate over new EU treaty
* Anti-immigration Swiss People’s Party opposes free movement
By Michael Shields
ZURICH, June 27 (Reuters) - Marco Bueter, a gastric surgeon from Germany, knows from his work at University Hospital Zurich and other clinics how much Switzerland depends on foreign doctors.
"If you go into the kitchen between operations to have a coffee you always, always, hear someone speaking high German," said Bueter.
"If the Germans weren't there, there would be a big, big problem for the Swiss health system."
Switzerland does not have enough home-grown doctors so nearly a third are European Union citizens even though it is not a member of the 28-country bloc.
Those doctors and other foreigners, many of whom have well-paid jobs, benefit from a 1999 deal allowing workers to move freely between the EU and Switzerland. Now, some Swiss say so many foreigners have arrived that locals are losing out on good employment and a quality of life.
Such resentment echoes around Europe and is playing out in domestic politics from Austria to Britain. It has helped a populist Italian coalition gain power, imperilled German Chancellor Angela Merkel's government and contributed to Britain's decision to leave the EU.
In Switzerland it has helped to make the anti-immigrant, anti-EU Swiss People's Party the largest in parliament and driven the political discourse to the right, just as Switzerland enters a crucial phase in negotiations over its future ties with the EU.
On Wednesday the Swiss cabinet starts considering whether to push on with talks on a new treaty that could reset business and diplomatic rules for decades.
Brussels says Switzerland must replace more than 100 separate accords with a treaty. If the talks, which have dragged on for over four years, produce any deal, it would face a Swiss referendum.
Voters would chose whether to back a treaty strengthening business links with the EU but embracing the free movement of people. A rejection would boost Swiss sovereignty and its ability to keep out foreigners but would also risk diplomatic isolation and economic damage.
A similar debate can be heard in Britain as it tries to negotiate the parameters of its EU departure. Swiss politicians are watching those discussions closely.
Net EU immigration has slowed slightly in the last four years as other economies picked up, but at the end of 2017 just over 2 million foreigners were living in Switzerland. That is a quarter of the population, up from 15 percent in the late 1960s.
Nearly 70 percent are from the EU or Liechtenstein, Norway and Iceland as they also are part of the free movement accord.
Many of them work in highly paid IT, banking and medical jobs. Foreign executives run Swiss companies including drugmaker Roche, food group Nestle and Zurich Insurance.
The Swiss cabinet -- made up of three centre-left to centre-right parties and the SVP -- will consider whether enough progress has been made to carry on with negotiations or whether they should be postponed.
Switzerland and the European Parliament will also have elections next year so the window for a deal is closing.
The EU is Switzerland's largest export partner and Switzerland is the EU's third-largest export partner so there would be economic consequences for both sides if no deal is reached and relations become strained.
"It is important for Swiss business to know what will happen with immigration and the pool of labour. For Switzerland, like many other countries, skilled labour will become scarce in the years ahead," said Joachim Blatter, a political scientist at the University of Lucerne.
A new treaty would provide a new legal basis for cooperation and also set up a more effective platform to settle disputes.
Switzerland wants the treaty to provide a firmer framework for aviation, rail traffic, common standards and processed farm products.
It would also like to join the single electricity market but Brussels has told Bern it will not discuss new access until a treaty is agreed.
The SVP wants a treaty so that Switzerland can have access to the single market but it wants to dump the accord on the free movement of people, a red line for Brussels.
The SVP position has created tensions with other three parties, who back the free movement of people, and stirred resentment in the public at large which would have to vote through a treaty.
Brussels is expected to ratchet up pressure on Switzerland if no deal is reached. In December, the EU fired a warning shot of what could come. It extended rules allowing Swiss stocks to be traded on EU markets but only until the end of 2018 and limited any further extension to progress towards a new treaty.
As the deal would undoubtedly be put to a binding referendum, politicians must consider the public's growing concern about foreign workers when they negotiate.
The SVP's stance on immigration has helped to make it the biggest party in parliament. It has two of seven cabinet seats.
As the SVP has grown, the two centre-right parties have been pulled to the right.
Foreign Minister Ignazio Cassis, who is from the pro-business FDP party, even attended the SVP's annual rally in Albisguetli to ask SVP voters for support over the treaty.
He said Switzerland was slowly being cut off from its most important trading partner and urged the party to accept EU rules on the single market in exchange for Swiss market access.
Swiss trade volume with the neighbouring German states of Baden-Wuerttemberg and Bavaria surpassed that with all of China, he said.
"Let's be honest with ourselves here. Everything has its price," he said.
SVP flyers at the rally said Switzerland had been flooded with EU citizens who were responsible for traffic jams, overfilled hospitals and school classes, exploding costs for health and public assistance, and increasing numbers of jobless Swiss over the age of 50.
"It is finally time to expose the fairy tale of the economic necessity of such exorbitant immigration while the quality of life keeps sinking," they said.
The SVP message has resonated with its supporters.
"These EU people come into Switzerland, haven't paid unemployment and health insurance for years, and we Swiss who have paid all our lives are now being played as fools and have to fight for what we are owed," said Bea Habiger, 55, an unemployed telephone operator and political activist for the SVP in Bern who cares for her sick husband.
Business leaders and labour unions say the free movement accord has contributed to growth and prosperity. But it has also led to competition for desirable jobs and housing.
"I know many companies that say we would like to have a German -- or even better a German woman -- for positions because they simply have an edge, they are tough, they do their job," said Rebekka Risi, who runs a programme to retrain jobless IT experts and engineers.
Population growth -- more than 10 percent in a decade -- combined with ultra-low interest rates has fed a boom in property prices, especially in prime urban areas, said UBS Swiss real estate expert Matthias Holzhey.
In 2014, the Swiss voted in a referendum to set upper limits on EU immigration but parliament avoided putting the constitutional amendment into practice as it did not want to upset Brussels.
But as EU citizens continue to arrive and support for the SVP has increased, that tolerance may be running out.
"Remaining independent is worth much more than the price we would have to pay for a few managers from big companies who are mostly foreigners and can hardly speak German," said Christoph Blocher, a senior figure in the SVP.
Editing by Anna Willard