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the discussion in the spec in the paragraph above the 1,2,3 enumeration of the base uri also supports this view:
"... Neither internal entities, whether declared in the internal subset or in an external DTD, nor freestanding text (text not enclosed in an element) in an
external entity, are considered to set a base URI separate from the base URI in scope for the entity reference."
that is, the outermost element appearing in an external entity changes the base uri from "the base URI in scope for the entity reference".
John Cowan wrote:
> Elliotte Rusty Harold scripsit:
> > 2. the base URI of the element's parent element within the document
> > or external entity, if one exists, otherwise
> > Clearly, point 2 applies. Unfortunately the English is unclear. Does it mean:
> > A. the base URI of the element's parent element within the *same*
> > entity, whether that entity is a document entity or external entity
> > B. the base URI of the element's parent element whether the element
> > comes from the document entity or an external entity
> I think clearly A is meant, otherwise there would be no point in mentioning
> entities at all in point 2. A clearer wording would be "document entity or
> external entity" rather than "document or external entity".