The Canadian government has issued an order Monday that would have blocked the state from doing the project on land it leases at Prince Rupert, British Columbia, unless a resolution was reached.
The dispute centred on "Buy America" requirements for steel, iron and manufactured products used in projects funded by the Federal Highway Administration.
Much of the construction funding for the project was to come from the federal agency, with the rest coming from the state. The cost of the ferry terminal replacement project was estimated at between $10 million and $20 million.
Canadian officials called the requirement to only use U.S. steel on Canadian soil unacceptable. They suggested that the state seek a waiver from the federal government of the "Buy America" provision, but Gov. Bill Walker said he had not seen a need for one. Another option would have been for the state to fund the project itself, but Alaska faces multibillion-dollar budget deficits because of the fall in oil prices.
It was not immediately clear what Wednesday's action will mean for the project in the long run. The Prince Rupert terminal is part of the Alaska Marine Highway System.
Patricia Eckert, the associate director for international trade within the governor's office, said by email late Wednesday that the state transportation department can maintain normal operations at the port "over the next several years until this is sorted out."
The ferry system signed a 50-year lease with Prince Rupert in 2013, she said.