Notes from the 4/02 meeting:

This is not a defect. Section 9.3.3 [dcl.ambig.res] reads:

The ambiguity arising from the similarity between a function-style cast and a declaration mentioned in 8.10 [stmt.ambig] can also occur in the context of a declaration. In that context, the choice is between a function declaration with a redundant set of parentheses around a parameter name and an object declaration with a function-style cast as the initializer. Just as for the ambiguities mentioned in 8.10 [stmt.ambig], the resolution is to consider any construct that could possibly be a declaration a declaration.

The wording "any construct" in the last sentence is not limited to top-level constructs. In particular, the function declaration encloses a parameter declaration, whereas the object declaration encloses an expression. Therefore, in case of ambiguity between these two cases, the declaration is parsed as a function declaration.