The rules for the subtype() relation say

The judgement subtype(A, B) determines if the sequence type A is a subtype of the sequence type B. A can either be empty-sequence(), xs:error, or an ItemType, Ai, possibly followed by an occurrence indicator. 

(and then say the same for B)

It's not clear whether the second sentence should parse as

A is (a) one of (empty-sequence(), xs:error, or an ItemType, Ai), followed by (b) an optional occurrence indicator.

or as

A is one of (a) empty-sequence(), (b) xs:error, or (c) an ItemType Ai followed by an optional occurrence indicator.

Actually I think it's neither of these. I think xs:error is itself an ItemType, so it doesn't need to be listed; and it can be followed by an occurrence indicator, so the actual rule is

A is either (i) empty-sequence(), or (ii) an ItemType Ai followed by an optional occurrence indicator.