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roslaunch is very strict about argument passing; you can't use an argument ($(arg foo)) without first declaring that the launch file takes an argument (<arg name="foo"/>).

in addition, passing arguments that are not expected, or failing to pass arguments that do not have a default is an error. (very similar to passing arguments when calling a function in C++ or python)

Therefore, your included launch file should be:

<?xml version="1.0"?>
<launch>
    <arg name="foo"/> <!-- declare that this launch file requires an argument -->

    <param name="testing" value="$(arg foo)"/> <!-- use the argument -->
</launch>