Working within a Faction's territory requires the use of Acknowledge and Surrender. Merchants will not respond to surrender and no reputation will be lost. Bounty Hunters and Merchants may search, however, appropriate permits will enable the "Acknowledge" option which always allows the Captain to pass without trouble.
Constantly retreating without considering the laws and territory will cause trouble -- but that is the Star Trader's equivalent of running from the police and customs officials!
This was terribly enlightening. I was wondering why I was getting rep hits.
Also, it's indicative of the kind of stuff I believe needs to be explained fully in the Player Guide.