Q:

XML Schema restriction defined by document being validated

Is there a way for an XML schema to define something like the following where the codes used in <item> elements are defined by the document author in the <validCodes> element. These codes themselves may be restricted to an enumeration or a simple regex match but that's not important here.
<validCodes>
  <code>AA</code>
  <code>BB</code>
</validCodes>
...
<item code="AA"> VALID </item>
<item code="BB"> VALID </item>
<item code="AB"> INVALID </item>

To rephrase this, I want to allow authors of a configuration file to define their own restrictions in XML without having to define it in terms of a schema. 

A:

XSD 1.0
Your constraint cannot be expressed.
XSD 1.1
Your constraint can be expressed via an assertion:
<xs:assert test="every $c in item/@code satisfies $c = validCodes/code"/>

XML
<?xml version="1.0" encoding="UTF-8"?>
<r>
  <validCodes>
    <code>AA</code>
    <code>BB</code>
  </validCodes>
  <item code="AA"> VALID </item>
  <item code="BB"> VALID </item>
  <item code="AB"> INVALID </item>
</r>

XSD
<?xml version="1.0" encoding="UTF-8"?>
<xs:schema xmlns:xs="http://www.w3.org/2001/XMLSchema"
           xmlns:vc="http://www.w3.org/2007/XMLSchema-versioning"
           elementFormDefault="qualified"
           vc:minVersion="1.1">
  <xs:element name="r">
    <xs:complexType>
      <xs:sequence>
        <xs:element name="validCodes">
          <xs:complexType>
            <xs:sequence>
              <xs:element name="code" type="xs:string" maxOccurs="unbounded"/>
            </xs:sequence>
          </xs:complexType>
        </xs:element>
        <xs:element name="item" maxOccurs="unbounded">
          <xs:complexType>
            <xs:simpleContent>
              <xs:extension base="xs:string">
                <xs:attribute name="code" type="xs:string"/>
              </xs:extension>
            </xs:simpleContent>
          </xs:complexType>
        </xs:element>
      </xs:sequence>
     <xs:assert test="every $c in item/@code satisfies $c = validCodes/code"/>
    </xs:complexType>
  </xs:element>
</xs:schema>

