This config works because you have made fe-0/0/1 part of both VLANs trust and transit.
Interface fe-0/0/3 is part of vlan trust.
Whenever PC connected to fe-0/0/1 sends an ARP Request broadcast, it will be forwarded on fe-0/0/3.
There is no need of trust to trust policy for intra-vlan communication.
Error in configuration 1: Interface fe-0/0/1 is an l3-interface with vlan tag of 16. Interface fe-0/0/3 is ethernetswitching interface with a vlan-id 16. An ARP broadcast will not cross a L3-interface(restricted to network).
Error in configuration 2: Interface fe-0/0/1 family is not specified.