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Section 4.16 (1) It says: The syntax for variable declarations allows annotations, but XQuery 3.0 does not define annotations that apply to variable declarations. However, it does appear to define two such annotations: %private and %public. (2) It refers to these annotations variously as %private and %fn:private. However, it does not appear to state anywhere that unprefixed annotation names are in the default function namespace.
The Working Group agrees, modulo the resolution of Bug 16199 - unprefixed annotation names are in the default annotation namespace.