The long arm of the protectionist Buy America Act is reaching deep into Canada – to remote Prince Rupert, B.C.

Canadian iron and steel have been banished from a major overhaul of the Prince Rupert ferry terminal because the U.S. government is footing the bill for the bulk of the work.

The project highlights the growing "ridiculousness" of proliferating Buy American laws and the damage they cause in Canada, said Martin Lavoie, director of policy at the Canadian Manufacturers and Exporters.

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"This is Buy America, in Canada, on federal land," Mr. Lavoie said.

Trade Minister Ed Fast said he's "deeply concerned" the U.S. would apply Buy America in Canada, adding that Ottawa is now exploring "all options" to address the situation. "The extraterritorial application of these protectionist restrictions on trade within Canada by a foreign government is unreasonable," Mr. Fast said in statement Tuesday.

There may be little anyone can do about it, including the federal government, even though it owns the port authority and the land, officials in B.C. and Alaska say.

The port of Prince Rupert, located 750 kilometres north of Vancouver near the southern tip of the Alaska Panhandle, sits on Canadian Crown land. But it's leased back to the local port authority, which recently sublet the ferry terminal to the Alaska Marine Highway System under a 50-year lease that expires in 2063.

Bidding documents posted on the Alaska Department of Transportation website make clear that "all iron and steel products associated with this project are subject to the Buy America provisions." The $10-million to $20-million (U.S.) terminal and wharf project, slated to begin shortly and be completed in 2016, is being funded by the U.S. Federal Highway Administration and the state of Alaska.

"As you can imagine, we don't build a lot of projects in foreign countries, whether it's Canada or any other country," said Jeremy Woodrow of the Alaska Marine Highway System. "This is one we just couldn't get around [Buy America] because we are using U.S. federal highway dollars."

Mr. Woodrow warned the ferry service will do metallurgical tests to confirm any steel used is U.S.-made, forcing the contractor to bear the cost of removing any illegal product.

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Port Authority spokesman Michael Gurney said the federal agency's hands are tied. Nothing in the lease allows the port to control procurement at the terminal, which is owned and operated by Alaska.

The fact the Buy America rules would apply to work in Canada doesn't sit well with steel makers and fabricators, who say they're increasingly getting the short end of North American steel trade. They're shut out of billions of dollars worth of government-funded transportation projects in the U.S., while their U.S. rivals are generally free to bid on similar work in Canada.

"What's shocking about this is that, not only is Buy America very pervasive in the U.S., now they're extending their tentacles into other countries," said Edward Whalen, president of the Canadian Institute of Steel Construction. "That's just going a little bit too far."

Canada has an annual trade deficit of nearly $1-billion (Canadian) a year with the U.S. in fabricated steel, a reversal of the $1.2-billion surplus it enjoyed as recently as 2008. And Mr. Whalen said Buy America is a factor.

The Prince Rupert case comes just months after U.S. authorities ordered the dismantling of a newly built bridge in the small town of Morrison, Colo., after discovering it contained Ontario-made steel beams, in contravention of Buy America rules. The U.S. Federal Highway Administration later backed down, and agreed to pay for the bridge.

Industry officials said the solution is for Canada and the U.S. to negotiate reciprocity in government purchasing – an area left largely outside the North American free-trade agreement. Mr. Lavoie said Ottawa and the provinces aren't doing enough to press the U.S. to negotiate. He said the best way to get Washington's attention would be for governments in Canada to slap Buy Canadian restrictions on federally funded infrastructure projects, including the $5.8-billion in spending announced this week by Prime Minister Stephen Harper for everything from museums to small-craft harbours.