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We currently say (in 3.14) If the xsl:import-schema element contains an xs:schema element, then the schema-location attribute must be absent, and the namespace attribute must either have the same value as the targetNamespace attribute of the xs:schema element (if present), or must be absent, in which case its effective value is that of the targetNamespace attribute of the xs:schema element if present or the zero-length string otherwise. However, the zero-length string is not a valid value of the namespace attribute. We should say that in this situation (an inline schema for the no-namespace) that the namespace attribute is treated as absent.
The WG discussed this on 21 Jun 2007 and agreed to make the proposed change.
Erratum E9 drafted.