This is difficult to answer completely without a careful reading of the code provisions. I would normally interpret the "outside" of an easement to be its boundaries, no matter whether on or inside the property line. Setbacks typically are measured from the property line. However, what really matters is how the jurisdiction interprets its own rules. You should contact someone knowledgeable at the city who deals with setbacks (probably in the planning department) to find out how they would measure it. If that does not resolve the issue, you should consult a real estate attorney experienced in land use issue in that city.
PLEASE BE ADVISED: This answer and any information contained herein is not intended to be treated, and should not be construed, as legal advice. Rather, this answer is offered solely for general information purposes. This answer does not create an attorney-client relationship, nor does it create any kind of legal relationship, duty, or privilege. This attorney is licensed only in Washington.