In a largely unexpected development, on September 3, 2013 Armenian President Serzh Sarkisian announced a dramatic U-turn in Armenian policy. While in Moscow, after being summoned to a meeting with his Russian counterpart, the Armenian president promised Russian officials that Armenia would join the Russian-led "Customs Union," and would support Moscow's efforts to "integrate" the former Soviet space. That decision effectively ended Armenia's planned "initialing" of an Association Agreement and related Deep and Comprehensive Free Trade Area (DCFTA) with the European Union set for the Vilnius Summit in late November 2013.
Missed Opportunities, Strategic Mistakes
Clearly, this sudden shift in policy represents a missed opportunity for Armenia, and also stands as a serious strategic blunder. Moscow's success in forcing Yerevan to backtrack on its intention to finalize pending agreements with the EU, imposes several significant challenges on Armenia. In the short-term, now that Armenia was forced to renege on its promise to initial an Association Agreement and related Deep and Comprehensive Free Trade Area (DCFTA), it will be hard pressed to recover confidence and credibility. Such a move not only imperiled several years of difficult negotiations and reform, but also tested European patience. The decision to join the Customs Union also offers Armenia little if any alternative benefits, and may lock Armenia even more firmly within the Russian orbit, limiting its future to little more than a captive to Moscow's grand project for a rival Customs Union, as the first step toward the so-called "Eurasian Union."
Further, Armenia has clearly missed a strategic opportunity and opening to the West. And the longer term impact may be significant, undermining the Armenian government's meager legitimacy by endangering the overall reform program and significantly weakening pro-Western reformers within the government. Thus, the danger for Armenia is greater isolation, enhanced insignificance, and, most distressing, the threat of becoming little more than a "small, subservient Russian garrison state." And, from a broader perspective, the Armenian retreat from its planned Association Agreement with the EU and its move toward Russia's Customs Union, also reveals several deeper deficiencies within the Armenian government in terms of closed public policy, inadequate strategic planning and the informal decision-making process.
At the same time, Armenia's "strategic partnership" with Russia has been largely one-sided and defined by an inherent lack of parity, as Armenia has most often received insufficient dividends from this relationship. Over time, the gradual expansion of Russian power and influence has only enhanced Armenia's over-dependence on Russia. Although close relations with Russia are essential for Armenia over the longer term, the asymmetry of the bilateral relationship has become increasingly evident. Moreover, after a questionable "assets-for-debt" agreement between Armenia and Russia in 2002-2003, whereby Russia acquired several key strategic enterprises, Russia has gained control over key sectors of the Armenian economy, including much of the country's energy sector, and its sole nuclear power plant, after securing the consent of overly-compliant Armenian officials. More recently, Russia has also widened its economic leverage by taking over the Armenian railway network, and acquiring a significant share in the mining sector.
Balancing between Russia and the West
In order to offset that over-dependence on Russia, for much of the past decade, Armenian foreign policy has successfully bridged the division between its "strategic partnership" with Russia and its deepening of ties and orientation with the West. This particular foreign policy, termed "complementarity," incorporates Armenia's strategic imperative of security, based on a reliance on its strategic alliance with Russia and a positive relationship with Iran, while simultaneously expanding its role within Western and Euro-Atlantic security structures. Moreover, this policy of complementarity, although seemingly contradictory, is in fact a natural result of Armenia's historical and geopolitical considerations. The strategic partnership with Russia is both rooted in history and necessity, especially given the closure of the country's Turkish and Azerbaijani borders, which has forced Armenia to look beyond its traditional trade and export routes.
In the military security area, Armenia's "strategic partnership" with Russia offers an essential security umbrella, which is especially critical given the constant threat of renewed hostilities with Azerbaijan. Yet even with the lack of parity in the relationship, Armenia has forged a degree of flexibility within the constraints of its mounting over-dependence on Russia. In the defense sector, for example, Armenia continues to deepen ties with the West, through both bilateral agreements with a wide range of countries (France, Germany, Greece, the United States, etc.) and within the context of institutional cooperation within the NATO Partnership for Peace (PfP) program. At the same time, as the only member of the Collective Security Treaty Organization (CSTO) in the South Caucasus and as the only country in the region to host a Russian military base, Armenia has simultaneously maintained its strategic military and security relationship with Russia.
This trend has also tended to enhance the effectiveness of complementarity, modeled on a policy of balancing the contradictory impulses of a "strategic alliance" with Russia with a pro-Western orientation. This too has only bolstered Armenia's strategic significance to the West while also elevating its value as Russia's reliable regional ally. Although Armenia remains fully reliant on Russian arms and discounted weapons stocks obtained through the CSTO, in terms of operational training, doctrine and modernization, Armenian defense reforms have adopted a firmly pro-Western perspective. At the same time, Armenia has been careful not to trigger Russian concern over Armenia's apparent Westward shift and has repeatedly ruled out any aspirations for full NATO membership, consistently reiterated its commitment to maintaining the Armenian-Russian strategic relationship and increasing is participation within the Russian-led CSTO. Now, in the wake of the shift in Armenian policy, the future of Armenian defense reform and modernization may be at risk if Russia decides to further limit Armenian options and curtail its "Western embrace."
Endangering Reform, Weakening Reformers
Further, this rather sudden and quite unexpected decision to opt for the Customs Union over the European Union forfeits over four years of often difficult negotiations and reforms and hard-won successes in this area. This one move also imperils the overall reform program by weakening the pro-Western reformers within the government and reverting to an inherently limited policy of remaining dangerously overly-dependent on Russia. But there are serious obstacles for Armenian entry into the Customs Union. More specifically, the absence of common borders with Russia, or with Belarus and Kazakhstan, the two other members of the Customs Union, poses a logical impediment to such a move.
Second, as even the Armenian prime minister has noted, "the structure of the Armenian economy is very different from that of the economies of the Customs Union's countries, which have substantial deposits of energy resources and pursue a policy of supporting domestic manufacturers through quite high customs duties." Tigran Sargsyan also said that "on the whole, the level of such duties in the Customs Union is twice as high as those levied in Armenia," adding that as Armenia was one of the first CIS countries to join the World Trade Organization (WTO), such a switch to the Russian-dominated Customs Union would be very complicated, if not impossible.
The "Eurasian Union"
But beyond the Customs Union, there is also a second looming challenge to Armenia, as Russia is now stepping up efforts to launch its "Eurasian Union" project of broader reintegration within the former Soviet area. Against a backdrop of a steady expansion of Russian power and influence, the Eurasian Union represents a further attempt by Russia to consolidate its power and influence within the "near abroad," a Russian term for the former Soviet states. For Russia, the concept of the "Eurasian Union" represents an attempt to consolidate Russian measures aimed at integrating the states within the near abroad. The move is a natural expansion of existing Russian-led projects of reintegration, based on the Commonwealth of Independent States (CIS), but further building on both the Russian-dominated Customs Union.
Yet the concept of the Eurasian Union remains both incoherent and undefined, marked more by its lack of practical benefits and absence of substance. And even the potential economic incentive for states to enter the Eurasian Union is fairly weak. For example, in the case of Armenia, membership would offer rather meager and marginal economic benefits, while gains would mostly accrue to Russia. While Russian attempts to institutionalize the reintegration of economy, trade and transport within the near abroad is not new, the timing of this project does represent a more assertive Russian response to EU engagement and a more robust defense of its "near abroad."
Thus, for Russia, the Eurasian Union is a clear reaction to a recent trend of greater EU engagement along Russia's periphery, and a response to the effectiveness of the EU Eastern Partnership Program, which has already been bolstered by ongoing negotiations between the EU and several key states over Association Agreements and DCFTAs. But the success of the Eurasian Union project now depends on two factors: whether Ukraine can or will sign an Association Agreement and how the EU will now deal Armenia and the other Eastern Partnership countries left without an Association Agreement. The US position remains clear, however, as seen in the comments by former US Secretary of State Hillary Clinton, which warned that the Eurasian Union was aimed not at economic integration in Eurasia, but was instead "a move to re-Sovietize the region."
In the aftermath of this decision, the EU is now exploring alternative ways to engage Armenia. More specifically, one such move may be a new "Legal Framework," consisting of a six-point agenda:
(1) Mobility, and people-to-people contact and exchange, as a "carrot" for Armenia;
(2) Good governance, with a new stress on local and regional governance and greater accountability;
(3) The rule of law, with a focus on judicial reform and more attention on law enforcement and enhanced standards for police conduct and performance;
(4) Democratization, with a broader approach on political parties, party and campaign finance and measures to promote greater civic and civil society engagement in the public policy process;
(5) Anti-corruption, including a new targeting of commodity-based cartels, or so called "oligarchic structures," and anti-trust mechanisms; and
(6) Sectoral cooperation, for more sweeping and broader capacity-building.
The challenge is now how to salvage and redefine the relationship between the EU and Armenia in the wake of the surprise retreat in Armenian policy, and redefine Armenia's position within the EU's Eastern Partnership program. Thus, in the face of both the inherent trend of Armenian over-dependence on Russia and the serious degree of Russian power and influence in Armenia, the pressure from Moscow for Yerevan to join the Eurasian Union was apparently overwhelming. But in reality, the Russian goal was more to compel Armenia "say no" to the EU than to "say yes" to the Customs Union.
 For more on this, see: Peter, Laurence, "Armenia rift over trade deal fuels EU-Russia tension," BBC News, September 5, 2013. www.bbc.co.uk/news/world-europe-23975951
 The European Union's Deep and Comprehensive Free Trade Agreement (DCFTA) represents more than a standard free trade agreement, as it covers not only the liberalization of trade in all areas, by lifting customs barriers and trade quotas, but also the harmonization of partner countries' trade-related legislation with EU standards and the acquis communautaire. Membership in the World Trade Organization (WTO) is a precondition for entering negotiations on the DCFTA, which means that Azerbaijan and Belarus, which are not WTO members, are ineligible to enter into negotiations on a DCFTA with the EU. For more, see: www.easternpartnership.org/content/eap-s-bilateral-dimension
 First launched in 2011, the "Customs Union" is composed of Belarus, Kazakhstan and Russia, although in April 2013, Kyrgyzstan also expressed interest in joining. Those three states also formed the "Common Economic Space" in January 2012, a mechanism to "allow the free movement of capital, labor, goods and services."
 The "near abroad," or blizhneyezarubezhye (ближнеезарубежье), has generally been elevated to a concept of a Russian "sphere of influence" over and within the former Soviet states; also referred to as the "post-Soviet space." For more on the concept of "near abroad," see: Porter, Bruce and Carol Saivetz, "The Once and Future Empire: Russia and the Near Abroad." The Washington Quarterly 17 (1994), 75–90.
 Launched in May 2008, the Eastern Partnership (EaP) is an ambitious project initiated by Poland and Sweden that seeks to forge closer relations with six key former Soviet states - Armenia, Azerbaijan, Georgia, Belarus, Moldova and Ukraine - as part of the European Neighborhood Policy (ENP).
 "Clinton Calls Eurasian Integration an Effort to Re-Sovietize," Radio Free Europe/Radio Liberty (RFE/RL), December 7, 2012.
- Introduction. The South Caucasus on the crossroads: Where will the road to Vilnius lead?
- Alieva, Leila. "EU-Azerbaijan: Driven by strategic importance, lacking value-based impact"
- Haindrava, Ivlian. "Reaching out to the Abkhazians and Ossetians through the EU"
- Iskandaryan, Alexander. "Choosing between the EU and Security"
- Kochladze, Manana. "Last but not least: the Sustainable Development - the challenge to the Eastern Partnership"