Couple of things to be aware of when using the externally-applied context.xml file:
1. An external context.xml will override (completely) the META-INF/context.xml file (if there is one).
2. The actual name of an external context.xml file (unlike the one in META-INF) is almost never literally "context.xml". It cannot be, since that would only allow deploying one context (webapp), and directories can only hold 1 copy of a given filename.
3. The actual context name that a webapp will appear under when using an external context.xml will be the name of the context.xml file, and NOT what you defined in the Context element within that file. The context name in the context.xml file is only used when it is an internal (META-INF/context.xml). I'm not very happy about that, but that's how it works. So if you define a $CATALINA_BASE/conf/catalina/localhost/fubar.xml file, the webapp will appear at
http://localhost:8080/fubar.