Abstract. Short cut fusion is a particular program transformation technique which uses a single, local transformation — called the foldr-build rule — to remove certain intermediate lists from modularly constructed functional programs. Arguments that short cut fusion is correct typically appeal either to intuition or to “free theorems” — even though the latter have not been known to hold for the languages supporting higher-order polymorphic functions and fixed point recursion in which short cut fusion is usually applied. In this paper we use Pitts’ recent demonstration that contextual equivalence in such languages is relationally parametric to prove that programs in them which have undergone short cut fusion are contextually equivalent to their unfused counterparts. The same techniques in fact yield a much more general result. For each algebraic data type we define a generalization augment of build which constructs substitution instances of its associated data structures. ...