[GHC] #16322: "deriving newtype instance" generates an infinite loop

[GHC]

#16322: "deriving newtype instance" generates an infinite loop
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        Reporter:  paf31             |                Owner:  (none)
            Type:  bug               |               Status:  infoneeded
        Priority:  normal            |            Milestone:
       Component:  Compiler          |              Version:  8.6.3
      Resolution:                    |             Keywords:
Operating System:  Unknown/Multiple  |         Architecture:
                                     |  Unknown/Multiple
 Type of failure:  None/Unknown      |            Test Case:
      Blocked By:                    |             Blocking:
 Related Tickets:                    |  Differential Rev(s):
       Wiki Page:                    |
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Comment (by paf31):

 I'll break down my understanding step-by-step based on what you've said
 above, and please let me know where I go wrong:

 1. I require `C (X String a) (X String b)` given `C a b`
 2. `deriving newtype` uses the newtype only in the last type argument, so
 GHC reduces this to looking for an instance of `C (X String a) b`.
 3. The only instances that could ever possibly be applicable (even just
 based on the class) are `C Int Int`, `C a b` (in scope locally) and `C (X
 String a) (X String b)` itself (the recursive instance which is apparently
 chosen) but each leads to a contradiction (note that the functional
 dependency means I can infer the first type argument from the second):

 - `C Int Int` fails via `Int ~ X String a`.
 - `C a b` forces `X String a ~ a`
 - `C (X String a) (X String b)` forces `X String b ~ b`.

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Ticket URL: <http://ghc.haskell.org/trac/ghc/ticket/16322#comment:8>
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