Gen Mladic has been indicted over the 1995 Srebrenica massacre
The EU enlargement commissioner, Olli Rehn, made the announcement after consulting the UN tribunal's chief prosecutor Carla del Ponte.
The deadline set by the EU for Mr Mladic's arrest expired on Sunday.
Mr Mladic, who led the Bosnian Serb army in the 1990s, is accused of genocide in the Srebrenica massacre.
Along with his civilian counterpart, Radovan Karadzic, he is the most wanted war crimes suspect in Europe.
EU Enlargement Commissioner
He is thought to be hiding somewhere in Serbia.
Mr Rehn said he had discussed the situation with Ms Del Ponte.
"Her assessment is negative," he said. "I must say that it is disappointing that Belgrade has been unable to locate, arrest and transfer Ratko Mladic to The Hague.
"The Commission has therefore to call off the negotiations on the stabilisation and association agreement."
Serbian Prime Minister Vojislav Kostunica, who had promised that Mr Mladic would be located, arrested and transferred to the tribunal, was also expected to make a statement on Wednesday, radio B92 reports.
Serbia was hoping to reach a new deal with the EU by July to take its first step on the road to eventual membership.
All the other countries in the Balkans, except Bosnia, already have such stabilisation and association agreements, providing for closer political and economic ties with the EU.
But Ms del Ponte has already called for the EU to take a tough stance on Belgrade and Mr Rehn had said that the next round of talks, set for 11 May, could be called off unless Mr Mladic was arrested.
The BBC's Oana Lungescu says Mr Rehn's use of "calling off" rather than "suspension" of talks is significant as it means the EU executive can resume talks instantly once Mr Mladic is arrested - rather than go through the lengthy procedure of getting political approval from all 25 EU governments.
She says there are, however, fears of a nationalist backlash at a sensitive time in Serbia's political calendar.
This year, Belgrade stands to lose both the province of Kosovo, where the majority ethnic Albanians demand independence, and its partner Montenegro.It will be holding a referendum in just a few weeks on whether to pursue its union with Serbia. BBC