I really don't see this as an exploit. The pet turns red, and it has clearly the name of the enemy player on it. It doesn't show up as a 'mob', but as an enemy player. A player should know that attacking something red that is not an npc nor a mob will get them flagged. If they don't know that, then they'll probably know after the first corpse run, just like I learned not to stand out in the field afk when I came out a bg.

So yes, you trick the player into getting flagged to be able to attack them later. But you kite him all the way out of town. It's not different then a player would try to kite few others out of SW where backup is waiting, just to get them flagged.

The argument 'if you want to pvp, join a pvp realm' is crap, since blizzard made the pvp plag feature for a reason: i.e. to decide yourself when you want to be vulnerable for pvp or not. Once you decide to be flagged, you can't expect that it will be a fair battle, you can be ganked by 40 or you can end up in a 1v1.