Consider this function call:
foo::bar();
11.3.1.1.1, paragraph 3 [over.call.func] (N4778) covers this case:
In unqualified function calls, the name is not qualified by an
->or.operator and has the more general form of a primary-expression. The name is looked up in the context of the function call following the normal rules for name lookup in function calls...
Here, foo::bar is an unqualified name, in the sense that it's not qualified by -> or .. So this paragraph applies. Now, the meaning of the phrase "looked up in the context of" is explained in 6.4, paragraph 2 [basic.lookup]:
A name “looked up in the context of an expression” is looked up as an unqualified name in the scope where the expression is found.
However, foo::bar is a qualified name in the realm of name lookup. In other words, this combination of paragraphs basically say that, the qualified name foo::bar is looked up by the rule of unqualified name lookup. However, I don't think that unqualified name lookup is capable of recursively entering into a narrower scope, i.e., foo to bar. Is this a defect?
No, I don't think this is a defect. It says
The name is looked up in the context of the function call following the normal rules for name lookup in function calls [...]
As you can see from the part that I highlighted, the standard specifies how the name is supposed to be looked up: By name lookup.
Name lookup involves unqualified, qualified and argument-dependent lookup, so your name is indeed resolved by the qualified name lookup rules.
The "looked up in the context of expr" rule doesn't apply here, as it is specified what rule is used. That paragraph only comes into play when it's not. For example, in [class.qual]p1:
the names in a template-argument of a template-id are looked up in the context in which the entire postfix-expression occurs.