Sunday's vote: A return to Fortress Switzerland?

This country's brief experiment with open borders faces an uncertain future Sunday.

Voters are roughly split on the issue of whether Switzerland should close the gates or continue to allow the free flow of workers, tourists and transport trucks.

The referendum that may cancel the Schengen Agreement was called by the far-right Swiss People's Party, which has gained support recently with its nationalistic rhetoric. The agreement allows for border crossings without checks for most European Union countries, even though Switzerland is not a full-fledged EU member.

Although two-thirds of Swiss supported the idea of free borders in 2000, isolationism appears to be rising as the economy dips – and as the EU has expanded to include poorer countries from the east, says Antonio Missiroli, the director of studies at the European Policy Center in Brussels.

"There's a growing divide between Swiss cities, where people are anxious to open up to the external world, and rural communities, where xenophobia on the rise" he says.

For years, this tiny Alpine country, best known for chocolate, cheese, and banking privacy, has distanced itself from the EU, despite being literally surrounded by it. Isolationism is so deeply rooted here that it's been adopted as a role model by Euroskeptics across the Continent.

But Switzerland's export-oriented economy is also inextricably tied in with the world, potentially raising the stakes for closing the doors.

"We are finally realizing that if we do not start opening up toward Europe, Europe will close its gates to Switzerland, with a devastating impact on our economy," says Mattia Hausmann, a Swiss businessman.

Switzerland's isolation – and its fiercely guarded borders – has helped protect the country in times of peril, but the country's new generation of professionals worry that isolationism will result in backwardness, Mr. Hausmann says.

"They are now looking at other European countries as a source of inspiration and new ideas, while only a few years ago they were watched with distance," he says.

This enthusiasm among the young and cosmopolitan, however, may not reflect the feelings of the whole country, Hausmann admits. Open borders in recent years have injected tens of thousands of foreign workers into the Swiss economy, with many foreigners taking low-paying jobs.

"People are just tired of being Europe's bottleneck" Hausmann says.

Evidence of this view is supported by the recent electoral success of the Swiss People's Party, which in 2007 became the country's largest political force following a strong antiforeign campaign.

The Schengen Agreement had been approved by a national referendum in 2005, but the Swiss People's Party is now confident that the climate has changed.

"People are losing their jobs because there are so many commuters from Italy and France," says Pierre Rusconi, one of the party's leaders, as he campaigned to topple the Schengen on a recent Sunday in Lugano's central plaza. Leaflets distributed by Mr. Rusconi urge people to vote "against free circulation, high unemployment and criminality."

Campaign ads attacking Schengen show the Swiss flag being pecked apart by a murder of black crows – an image widely denounced as racist.

Rusconi predicts that the initiative to end Schengen will be supported by 60 percent in his Italian-speaking canton, where the number of workers who commute daily is particularly high. They're among the 200,000 people who live in neighboring countries but work in Switzerland, where wages tend to be higher.

Extending free border privileges to the new EU member states from the east has been a major focus of the campaign.

"Now that Romania and Bulgaria joined the EU, people are more worried about criminality" Rusconi says.

The idea has gained traction across much of Western Europe. In Italy the anti-immigration Northern League often blames Schengen for rising crime. Britain and Ireland have also opted out of the Schengen Agreement, in part because of similar concerns – nonetheless, Britain has higher rates of crime than many Schengen members, says Missiroli, with the European Policy Center.

"The case against Schengen has been more on psychological grounds, drawing on fears and uncertainty than on facts," he says.

Despite the increasingly hard times, the idea of free borders – with its access to a vast trade market and a 325 million-strong labor pool – remains alluring for many countries. Besides Switzerland, other non-EU members who have joined the treaty include Iceland and Norway. Liechtenstein is set to join this November.

Because a new referendum on Schengen cannot be held, Sunday's vote is officially aimed at canceling a package of bilateral agreements from 2002 between Switzerland and the EU. If Swiss voters reject the idea of free movement, the Schengen Agreement would be canceled later this year because of a built-in "guillotine clause."

The government, trade unions, and prominent businesses want open borders to continue and have campaigned against passage of the referendum.

A recent poll from GfS Polling Institute in Bern, however, shows growing support for rejecting Schengen. Last month, 43 percent of voters supported closed borders, up 3 percent from December. Fifty percent of those polled want to Schengen to stay in place.

Predicting the outcome of the measure is difficult because of the fast-changing economic crisis combined with a complicated canton-based voting system, Missiroli says.

"It is in Switzerland's interest to keep its border open with the EU, which is by far its [largest] trading partner," he says. "On the other hand, xenophobic feelings tend to be on the rise in times of hardship."