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Canadian and American flags fly in Point Roberts, Wash.Darryl Dyck/The Canadian Press

The deadline in the standoff between Canada and the United States over the potential imposition on Canadian soil of Buy America provisions has been extended to Jan. 21, with Ottawa weighing the use of an obscure anti-sanctions law should it not get its way.

Gary Doer, Canada's ambassador to the United States, and Alaska Governor Bill Walker were scheduled to speak by phone Friday in an attempt to resolve the dispute. The conversation follows a Dec. 18 face-to-face meeting in Toronto between Transport Minister Lisa Raitt and U.S. Transportation Secretary Anthony Foxx during which Canada also voiced its concerns about Buy America.

The most pressing issue is over a planned Alaska ferry service terminal renovation project in Prince Rupert that is estimated to cost as much as $20-million. Most of the money would come from the U.S. Federal Highway Administration, which routinely imposes conditions that require materials on its projects to be sourced from American firms.

"The Governor continues to meet with representatives from Canada, and has extended the deadline from Jan. 6 to Jan. 21 to find terms that are agreeable for Alaska and Canada," Grace Jang, a spokeswoman for Mr. Walker, said in an e-mail Friday.

Canada has long opposed Buy America provisions, calling them unfair to Canadian manufacturers, but Ottawa is particularly upset over the Prince Rupert project given that construction would take place in Canada on Canadian Crown land.

"We are hopeful that U.S. state and federal officials will find an acceptable solution to this problem. However, if not, Canada will continue to explore all options to stand up for Canadian workers," said Max Moncaster, press secretary to International Trade Minister Ed Fast. "As we have said before, it is counterproductive to try to segregate our economies."

The expanding use of Buy America provisions by Washington and various U.S. states represents a frustrating hurdle for Canadian manufacturers, who are eager to benefit from a stronger U.S. economy and lower Canadian dollar after a string of difficult years.

Ottawa is threatening to invoke the Foreign Extraterritorial Measures Act, a federal anti-sanctions law that has been used only once, in 1992, in relation to the U.S. trade embargo on Cuba.

The powers under the law would allow Ottawa to fine suppliers on the project should they attempt to comply with Buy America at the expense of Canadian suppliers.

Martin Lavoie, director of manufacturing policy for the trade association Canadian Manufacturers & Exporters, said it is good that both sides are still talking and expressed hope a compromise can be reached without invoking the anti-sanctions law.

"Obviously, it's a last-resort kind of option," he said, noting that invoking such a law would have negative consequences on the broader Canada-U.S. relationship. At the same time, Mr. Lavoie said Canada may have no choice if a compromise cannot be reached.

"There's no way we will accept Buy America rules to be imposed on our territory," Mr. Lavoie said.

The expanding use of Buy America provisions south of the border has been linked to Mueller Canada's Dec. 19 decision to shut its steel and iron manufacturing facility in Saint-Jérôme, Que., at a cost of about 80 jobs.

The facility manufactured products much as manhole covers that are commonly purchased by American municipalities that are subject to Buy America laws.

The state of New Jersey passed its own Buy America law last month and similar measures have been proposed in the New York State legislature. Canadian manufacturers are very concerned that the spread of these laws in key northern U.S. states will exacerbate the problem.

Manufacturing data released Friday in Canada and the United States showed positive business confidence on both sides of the border, though both economies saw a slight decline in confidence in the sector in December compared with November.

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