"This is an interesting question, and unfortunately it comes with a confusing answer. Let me start by addressing the use of the term "Champagne" as it refers to wine. The French wanted to protect the use of the term "Champagne" to only refer to bubbly made using traditional methods from grapes grown and vinified in the Champagne region of France, so when the Treaty of Versailles was signed in 1919 to end WWI, they included limits on the use of the word. History buffs may recall that the United States never actually ratified the Treaty of Versailles, and that in 1919 the U.S. was in the midst of Prohibition, so alcohol-labeling laws hardly seemed important at the time. This created the loophole that allowed producers here to legally slap the word "Champagne" on their bottles of bubbly—much to the irritation of the winegrowers in Champagne. Out of respect and to avoid confusion, many producers in the United States called their bubbly "sparkling wine," even when it's made in the traditional method.

Then, in early 2006, the United States and the European Union signed a wine trade agreement, and the issue was brought up again. This time, the United States agreed to not allow new uses of certain terms that were previously considered to be "semi-generic," such as Champagne (as well as Burgundy, Chablis, Port and Chianti). But anyone who already had an approved label was grandfathered in and may continue to use the term."

http://www.winespectator.com/drvinny/show/id/5011