you should get an error about using an undefined param
<xsl:with-param name="anestors"
^
However you don't need all that recursion it looks like a single Xpath
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform";
version="2.0">
<xsl:template match="*">
<xsl:copy>
<xsl:copy-of select="@*"/>
<xsl:attribute name="newseq"
select="string-join(ancestor-or-self::*/(if (@seq) then string(@seq) else
'0'),'')"/>
<xsl:apply-templates/>
</xsl:copy>
</xsl:template>
</xsl:stylesheet>
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