Swiss Reject Bid to Join Europe Trade Bloc : Commerce: Leaders fear Switzerland will be cut off from its trading partners as a result of the vote.

Voters dealt a sharp setback to Switzerland’s political and business Establishment Sunday by rejecting a national referendum to join a 19-nation European Economic Area, a move that would have required this Alpine country to abandon some of its traditional isolation and neutrality on global issues.

Most leading bankers, industrialists and mainstream politicians strongly supported the referendum, which called for Swiss participation in a giant, 370-million-population trade bloc composed of the 12 members of the European Community and the seven countries of the European Free Trade Assn., of which Switzerland is a member.

However, many of the traditionally conservative Swiss feared that their participation in the new Economic Area would open the door to immigration and disturb the country’s cherished grass-roots political system that gives important powers to even the smallest communities and requires popular votes on most significant government actions.

In what was described as the most important vote here since the Swiss confederation was formed in 1848, German-speaking Swiss in the country’s east and central regions turned out massively against the referendum, sealing its defeat.

Although the popular vote was fairly close, mainly because of huge support for European integration in French-speaking areas, backers of the referendum failed to win a majority of Switzerland’s 23 cantons, or states, needed for the referendum to carry. Final results Sunday showed 50.3% of the voters opposing the referendum and 49.7% in favor. But 16 of the cantons voted against the measure, while only seven voted for it.

Federal political leaders in Bern, the capital, reacted gloomily to the outcome, predicting that Switzerland risks being cut off from its main trading partners in Western Europe as a result.

“This is a black Sunday for the Swiss economy,” Federal Councilor Jean-Paul Delamuraz said at a crowded press conference. “It is a black Sunday for the future of employment in our country and for the partisans of a new openness in our country.” After years of nearly full employment, Switzerland recently has experienced its first significant jobless rate, topping 4%.

The voting highlighted growing divisions between the country’s German speakers, who form two-thirds of the population, and the minority French speakers, who account for about 20% of the population, revealing political fault lines likely to deepen in coming months.

Federal President Rene Felber described the French-German split as “a new and troubling cleavage, more worrisome than it has ever been before.”

The rejection is also viewed as another setback for the European Community, which viewed the referendum as the first step toward full Swiss membership in the EC. “The Swiss people have opted for isolation,” said a disappointed Frans Andriessen, the EC commissioner in Brussels in charge of foreign relations.

Still uncertain is the effect the Swiss rejection will have on the other European Free Trade Assn. countries--particularly Austria, Sweden and Finland--that were to join with Switzerland in the trade partnership with the EC.

A prosperous country of 6.8 million people in the heart of Europe, Switzerland has profited for more than two centuries from a neutral, isolationist policy that kept it out of two world wars and enriched it at the same time. Switzerland’s per capita income is 25% higher than that in the United States.

But the country’s economic fortunes have begun to slip in recent years, causing national banking and business leaders to fear the country was in danger of being economically and politically cut off from the huge, still-emerging market created by the European Community.

Debate over the referendum preoccupied Swiss political life in recent months.

The vote pitted young people (mostly for Swiss integration with Europe) against older people (mostly against it, especially in the German areas); French speakers (for) versus German speakers (against) and industrialists (for) versus small-business owners and farmers (mostly against).

The degree to which the powerful Swiss banking Establishment supported joining the new economic bloc, even if it meant abandoning some traditional Swiss banking practices, was reflected in a statement made before the vote by Walter Frehner, chief executive of the Swiss Bank Corp.

“I am against the offshore mentality being promoted by the opponents of the European Economic Area,” Frehner said. “I want to leave my children a Switzerland whose strength is not just its neighbors’ weaknesses, a Switzerland that does not consist only of hotels, banks and holding companies.”